Risks and Penalties for Failure to Maintain Proper Insurance in California

California law requires that any business with at least one employee or more carry workers’ compensation insurance. The law also provides both civil and even potentially criminal penalties for failing to carry it. Although some businesses may believe insurance is too expensive, the potential penalties for failing to carry it can be severe.

If a business is found without workers’ compensation insurance during an inspection, the Division of Labor Standards Enforcement (DLSE) must serve the business with a stop-work order. This means that the business cannot continue to use employee labor until it purchases the required insurance. If the business ignores the order and continues to use employee labor anyway, this is a misdemeanor. It is punishable with up to 60 days in jail and a fine of up to $10,000. The DLSE can also assess a penalty of $1,000 for each employee, up to $100,000.

In addition, a business can be assessed a monetary penalty. This penalty will be the greater of 1) twice the amount the business would have paid in insurance premiums for the time that the business was uninsured, or 2) $1,500 per employee. Obviously, this penalty can become very hefty, very quickly. There are exceptions to this rule for certain types of partnerships and corporations, depending on who is actually performing the work for the business.

The business can also face heavy repercussions from an injured employee. If an employee is injured on the job while working for an uninsured business, then the business is responsible for all of the employee’s bills related to that injury. The employee is also allowed to file a civil suit against the employer in addition to a workers’ compensation claim.

If the employee files a workers’ compensation claim before the Workers’ Compensation Appeals Board, there could be even more additional penalties assessed against a business that was illegally uninsured at the time of the employee’s injury. If the employees injuries are found to be compensable, then the business may be assessed a penalty of $10,000 per employee who was working for the business at the time of the employee’s injury. Even if the employee’s injuries are found to be non-compensable, the business may still be assessed $2,000 per employee. There is also a 200% assessment for any Premium, for up to 3 years preceding the injury.

It is clear that the risks and penalties for failure to carry the proper insurance can be severe. I can discuss the possible repercussions with you and help navigate you through the complexities of the California requirements for insurance. To set up a consultation to discuss your business, contact me at (714) 516-8188 or email [email protected].

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