By Sabrina Barr

At its September 9, 2020 meeting, the Contractors State License Board (CSLB) unanimously approved a legislative proposal [item E-3], recommended by CSLB staff and the Board’s Workers’ Compensation Advisory Committee, that would amend sections 7125 and 7125.4 of the Business and Professions Code to mandate workers’ compensation insurance for all licensees of the Board over a prescribed time period.  Under current law, contractors who hire employees are legally required to obtain workers’ compensation insurance, but contractors who work alone and do not hire employees can file an exemption. AB 3355 (Firestone) (Chapter 331, Statutes of 1996), which amended section 7125.4 of the Business and Professions Code, clarified that false exemptions can be a basis for disciplinary action, and not just automatic license suspension.

According to the staff memo in the agenda materials, the falsification of these exemptions is a widespread issue among contractors. During the 2019–2020 fiscal year, the Board canceled 374 false workers’ compensation exemptions; investigated 1,112 complaints; issued 38 letters of admonishment, and filed 326 complaints for legal action. The Board also performed 592 workers’ compensation compliance investigations through its Statewide Investigative Fraud Team (SWIFT) unit, which resulted in 48 letters of admonishment and 329 administrative disciplinary actions.

In presenting the proposal, staff reminded the Board that CSLB has worked to address this issue for years, beginning in 2017 when the Board established a small advisory committee to develop strategies to address workers’ compensation insurance avoidance. As part of its 2018 Sunset Review Report, the Board identified the high number of workers’ compensation exemptions (about 55 percent) as one of its “new issues” for the legislature to address and consider in future legislation impacting the Board. In 2019 and 2020, the Board held various meetings to discuss solutions to this problem, including a meeting with the State Compensation Insurance Fund.

Despite these efforts, staff reported that the number of workers’ compensation exemptions on file has remained consistent. For this reason, CSLB’s newly-approved legislative proposal seeks amendments to sections 7125 and 7125.4, of the Business and Professions Code, which would immediately require certain classes of contractors (C-8 concrete contractors, C-20 HVAC contractors, and D-49 tree service contractors) to obtain workers’ compensation insurance, and within three years, would require workers’ compensation insurance for every actively licensed contractor.

While staff noted that the proposed legislative amendments could result in a loss of 10 percent of the given license population, and $356,625 annually in license renewal fees, in addition to $25.6 million in annual premiums paid by the licensees, the staff and the advisory committee recommended that the Board pursue such legislation in the 2021–2022 legislative session.