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What are the Penalties for Not Providing Workers’ Comp to Employees?

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The California workers’ compensation program is in place to protect employees in the event of work-related injuries. According to California Labor Code Section 3700, all California employers must provide workers’ comp benefits to employees – any business that employs one or more employees must satisfy this law. The state of California takes the workers’ compensation program very seriously. Failure to obey workers’ compensation laws can lead to the Division of Labor Standards Enforcement (DLSE) shutting down an operation and penalizing negligent employers.

Fines and Jail Time

In California, it is a criminal offense not to have workers’ compensation coverage for employees. Section 3700.5 of the CA Labor Code defines failure to have workers’ comp coverage as a misdemeanor, punishable by imprisonment of up to one year in the county jail and/or fines of not less than $10,000. In addition, the state has the right to penalize illegally uninsured employers up to $100,000. The DLSE will assess a penalty of either twice the amount the employer would have paid in workers’ comp premiums during the uninsured time (determined according to subdivision) or the sum of $1,500 per employee during the uninsured time – whichever is greater.

If an injured employee files a workers’ comp claim with the Workers’ Compensation Appeals Board, and the judge finds the employer guilty of illegally failing to secure insurance, the uninsured employer may face penalties of up to $10,000 per employee on the payroll at the time of the original worker’s injury. This occurs if the Appeals Board finds the worker’s case to be compensable. Otherwise, the employer faces $2,000 per employee on the payroll at the time of the injury, up to a maximum of $100,000.

Effective January 1, 2011, the DLSE can issue a stop order at the time of discovering the issue. The stop order prohibits the employer from using employee labor until it obtains coverage. Failure to observe the stop order is a misdemeanor, punishable by up to 60 days in the county jail and/or fines of up to $10,000.

At the time of the stop order issuance, the DLSE will also assess penalties of $1,000 per employee on the payroll, up to $100,000. The Uninsured Employers’ Benefit Trust Fund may contact an illegally uninsured employer in pursuit of reimbursement of expenditures from the employer. The UEBTF will explore all available avenues to find the funding, including liens against the employer’s properties.

Payment for Worker Injuries

If a worker suffers an injury on the job while an employer does not have insurance, the employer is responsible for paying all bills related to the injury. In addition, the employee will have the right to file a personal injury claim against the employer. This claim is for the negligence of the employer in failing to carry insurance, as the law requires. In a civil claim, if found guilty, the courts may penalize the employer by having to pay for the injured worker’s medical bills, lost wages, lost capacity to work, pain and suffering, disability, and more. In California, there is currently no damage cap on personal injury claims (other than in medical malpractice cases).

Recent Real-World Example in California

Recently, the Monterey County District Attorney, Dean. D. Flippo, made an announcement regarding an employer found guilty of failure to secure workers’ comp insurance, Fernando Sanchez. This was Sanchez’s second conviction for the same offense. The courts placed Sanchez on probation for three years, plus 40 days in county jail and a $10,000 fine to the Uninsured Employers Fund. Sanchez must also maintain workers’ comp insurance for all employees.

Sanchez is an example of what can happen to employers who fail to fulfill the legal requirements for workers’ compensation insurance in California. To report an employer for failing to have workers’ compensation insurance, contact your nearest Labor Commissioner’s Office.