The Risk of Being an Illegally Uninsured Employer in California
By: Shamyl K. Siddiqi
The California Labor Code provides that all employers must be insured for workers’ compensation. This requirement begins when the employer status begins, and it lasts for the duration of the employer status. An employer can meet this obligation either by (1) obtaining insurance coverage of its liability, or (2) obtaining a certificate of consent to self-insure, issued by the director of Industrial Relations. If an employer does not secure liability, it is an illegally uninsured employer.
Failure to secure insurance can expose an employer to civil damages, an increase in liability for a workers’ compensation claim, civil penalties, and even criminal prosecution. Therefore, it is vitally important for all employers in California to be insured for workers’ compensation.
1. Civil Proceedings
Generally, workers’ compensation is the sole remedy for an employee who is injured on the job. But if an employer is illegally uninsured, an injured employee can pursue a civil claim for damages in addition to workers’ compensation benefits. Tort damages of a civil claim are usually more extensive than workers’ compensation benefits and can include full wage loss, compensatory damages and even punitive damages. If an employee brings both a civil case and a workers’ compensation case, recovery from either will be credited toward the other.
If an employer fails to be insured for workers’ compensation, it is presumed to be negligent and the burden of proof is on the employer to rebut this presumption. This presumption can only be overcome with substantial evidence.
An uninsured employer cannot use the common law defenses generally available in a civil action, including contributory negligence, assumption of risk, or the fellow servant rule. The employee is also entitled to have his or her attorney’s fees paid by the employer in an amount determined by the Superior Court.
2. Civil Penalties
An employer may be assessed a civil penalty if it fails to secure insurance or refuses to provide information regarding its workers’ compensation coverage status to the required authorities. If a stop order is issued, the uninsured employer must pay $1,500.00 per employee employed at that time.
If an employer is found to have been without insurance for a period of more than one week within a calendar year, a citation can be issued. This penalty is the greater of: (1) twice the amount the employer would have paid in premiums during the period it was uninsured, or (2) $1,500.00 per employee during the period it was uninsured. This penalty can only be assessed instead of the fine issued with a stop order, not in addition to it.
An employer cannot avoid these penalties by obtaining insurance that retroactively predates the issuance of the stop order or penalty assessment order. It does not matter whether the employer believed, in good faith, it had valid workers’ compensation insurance.
3. Compensation Proceedings
If the employee files a workers’ compensation claim against an illegally uninsured employer, the Appeals Board must hear and determine the claim as it would any other. If the Appeals Board finds that an employer “willfully” failed to secure insurance, its liability for workers’ compensation benefits is increased by 10 percent. The burden of proof is on the employer to present evidence that its failure to insure was not willful. Whether or not the failure to insure is willful, the Appeals Board may award reasonable attorney’s fees in addition to the recoverable compensation.
4. Uninsured Employers Benefits Trust Fund
The Uninsured Employers Benefits Trust Fund (UEBTF) is a trust fund account within the State Treasury and administered by the Director of Industrial Relations. It serves as a source of funds for injured employees of illegally uninsured employers, protecting them from being deprived of workers’ compensation benefits. Not only does it pay the injured worker, it also has the right to collect from the uninsured employer on the employee’s award.
An applicant can only collect money from the fund after an award for benefits has been issued from the Workers’ Compensation Appeals Board. It must be established that: (1) the employer was uninsured at the time of injury, and (2) an Award is granted to the applicant against the employer. The injured employee is entitled to the same compensation benefits from the UEBTF he or she would receive if the employer had been insured. The UEBTF then goes after the uninsured employer for reimbursement of any monies it paid to the injured employee.
5. Criminal Prosecution
An employer can be prosecuted for a misdemeanor if he or she fails to secure insurance. This offense is punishable by imprisonment in county jail for up to one year, and by a fine of up to double the amount of premium due to secure insurance during the period, but not less than $10,000.00. If the employer has a subsequent violation, he or she is subject to imprisonment for up to one year and a fine of triple the amount of the premium, but not less than $50,000.00. The person convicted may also be assessed the costs of the investigation. If the employer is a corporation, it will only be punished with the fine.
6. Experienced Representation
Joseph Igoa of Yrulegui & Roberts has been a practicing workers’ compensation defense attorney in the California Central Valley for over 40 years. He joined Yrulegui & Roberts in May 2019 for the express purpose of representing uninsured employers involved in a workers’ compensation claim, and employers seeking representation in Serious & Willful Misconduct claims or claims of employer discrimination under Labor Code Sec. 132(a).
As these claims may involve significant complexity and result in substantial financial liability to any named employer, it is essential that timely and effective representation be obtained in order to navigate through the workers’ compensation minefield and achieve a satisfactory outcome. Joseph Igoa has used his knowledge of the law and experience before the Workers’ Compensation Appeals Board to represent such defendants throughout his career and will continue to do so as part of the excellence in legal representation afforded through the law firm of Yrulegui & Roberts.
Joseph Igoa may be reached directly at email@example.com or may be contacted by phone at (559) 222-0660.