Focus shifts to employers in workers’ comp audits

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Times Staff Writer

For a decade, California employers and their advocates in Sacramento complained about the high cost of workers’ compensation insurance and condemned abuses of the system by employees, who they said fake claims, exaggerate medical conditions and collect fat disability benefits.

But some data suggest that employers -- not workers -- are the bigger workers’ compensation cheaters. And the state is stepping up enforcement against businesses suspected of ignoring the law and endangering workers.

Last month, dozens of state agents swept unannounced through 22 garment shops in Southern California and San Francisco, and this week inspectors hit San Joaquin Valley farm labor contractors. They checked for valid workers’ compensation insurance policies, business licenses and proper payroll procedures.


“We are out there enforcing these laws,” said David Dorame, director of a state and federal task force called the Economic and Employment Enforcement Coalition. “We care about workers’ rights and health and safety.”

Workers’ comp insurance is the state’s basic protection for people hurt on the job. A century-old law requires that all employers have policies that pay for medical care, hospitalization and disability payments for job-related injuries.

The heightened enforcement efforts are beginning to show results. In May, state labor officials conducted a quarterly survey of 500 randomly chosen firms and found that at least 12.4% of them did not carry workers’ compensation. They assessed $191,000 in fines against 62 companies.

“It’s troubling,” said John Duncan, director of the state Department of Industrial Relations, which did the survey. “Employers who are operating legitimately are getting undercut by those who are operating on the margin.”

No one has ever been able to measure fraud among the hundreds of thousands of employees each year who file workers’ comp claims, said UC Berkeley expert Frank Neuhauser. “But it’s certainly less than 10%,” he said.

Based on complaints by prosecutors, workers’ compensation violations by employers outweigh wrongdoing by employees. The California Department of Insurance, state fraud investigators and local district attorneys filed 567 cases against employers during fiscal year 2006-07. Cases filed against employees totaled 473.


New findings about employer violations are lending urgency to a stepped-up state program of sending inspectors on unannounced sweeps into garment shops, farms, construction sites, carwashes, motels and restaurants. The industries are targeted by the employment task force, which includes the state labor commissioner’s office, the Employment Development Department, the Division of Occupational Safety and Health, the Contractors State License Board and the U.S. Department of Labor.

So far this year the task force has conducted 46 sweeps of 706 businesses, assessing about $4 million in fines.

The enforcement teams are the best way to ensure that law-breaking employers don’t hide in the so-called underground economy “to the detriment of their employees, to the detriment of legitimate employers and, clearly, to the detriment of the state,” said Victoria Bradshaw, secretary of the California Labor and Workplace Development Agency, which has ultimate responsibility for the enforcement sweeps.

The agencies’ cooperation was evident during one such raid in Southern California last month, on a second-floor factory in Vernon’s gritty industrial flatlands. Bounding up the steps of a nondescript building, team leader Dorame found 17 workers silkscreening and pressing appliques on T-shirt components.

Dorame led an inventory of the shop’s signage and paperwork and found no evidence that the company, Musu Inc., had valid workers’ compensation coverage.

“The state of California has rules,” Dorame said in Spanish to a clutch of workers. “What happens if you slip on the floor, if you burn yourself with an iron?”


Dorame assured the Musu employees that he came to protect their rights, not to check their immigration status. In the meantime, other agents combed through time slips and payroll records and made safety inspections.

Dorame’s team found multiple violations of labor, licensing and safety laws at Musu. It shut down production, confiscated 49 bags of products and imposed $37,400 in fines on the company for workers’ compensation, licensing and payroll records violations.

The company is appealing the citations, saying it had workers’ compensation coverage at the time of the sweep, said attorney Haewon Kim.

Not buying workers’ compensation insurance is part of a pattern encompassing “a whole complex of wrongs that unscrupulous employers commit” that also includes lying to insurers about the size of their workforce and the riskiness of the jobs they perform, said California Atty. Gen. Jerry Brown.

Last year Brown created a special unit to investigate and prosecute companies that commit workers’ compensation fraud and evade payroll taxes.

Small-business advocate Scott Hauge said honest operators welcome the enforcement. Although most employers don’t like to talk about it, violations of workers’ compensation law are “worse on the employer side” than on the employee side, said Hauge, who directs Small Business California in San Francisco.


Hauge’s organization last year sponsored legislation, signed by Gov. Arnold Schwarzenegger, that authorized the employer audits.

Even business groups, which successfully pursued a 2004 workers’ compensation overhaul, say they were supporting the beefed-up enforcement drive against employers. “There really is no justification for leaving workers unprotected,” said Art Azevedo, a spokesman for the Workers’ Compensation Action Network, a statewide coalition.

Now that the cost of workers’ compensation has been slashed, it’s time to make sure that both employers and employees follow the law, said Angie Wei, a lobbyist for the California Labor Federation.

“You hear a lot of anecdotal and sensationalistic stories about fraud by workers,” she said. “But the sweeps show and the data bear out that employer fraud is institutionalized and systematic.”