Uninsured Employer Fund

Division 4, Part 1, Chapter 4, Article 2 of the Labor Code deals with the Uninsured Employer Fund in the California workers’ compensation laws.

Section 3710 requires the Director of Industrial Relations to enforce the provisions of this article. The director may employ necessary investigators, clerks, and other employees, and make use of the services of any employee of the department whom he may assign to assist him in the enforcement of this article.

Prosecutions for criminal violations of this division may be conducted by the appropriate public official of the county in which the offense is committed, by the Attorney General, or by any attorney in the civil service of the Department of Industrial Relations designated by the director for such purpose.

Section 3710.1 states that, where an employer has failed to secure the payment of compensation, the director is required to issue and serve on the employer a stop order prohibiting the use of employee labor by the employer until the employer’s compliance with law. The stop order becomes effective immediately upon service.

Any employee affected by this work stoppage must be paid by the employer for the time lost, not exceeding 10 days, pending compliance by the employer. An employer may protest the stop order by making and filing with the director a written request for a hearing within 20 days after service of the stop order. The hearing must be held within 5 days from the date of filing such request. 

Section 3710.2 explains that failure of an employer, officer, or anyone having direction, management, or control of any place of employment or of employees to observe a stop order issued and served upon him or her is a misdemeanor. Fines are to be paid into the State Treasury to the credit of the Uninsured Employers Fund. The director may also obtain injunctive and other relief from the courts.

Section 3710.3 provides that, whenever a stop order has been issued to a motor carrier of property subject to the jurisdiction and control of the Department of Motor Vehicles or to a household goods carrier, passenger stage corporation, or charter-party carrier of passengers subject to the jurisdiction and control of the Public Utilities Commission, the director is required to transmit the stop order to the Public Utilities Commission or the Department of Motor Vehicles, whichever has jurisdiction over the affected carrier, within 30 days.

Section 3711 authorizes the director, an investigator for the Department of Insurance Fraud Bureau, or a district attorney investigator assigned to investigate workers’ compensation fraud to require an employer to furnish a written statement showing the name of his or her insurer or the manner in which the employer has complied with the law. Failure of the employer for a period of 10 days to furnish the written statement is prima facie evidence that he or she has failed or neglected in respect to the matters so required.

Section 3712 provides that the securing of the payment of compensation in a way provided in this division is essential to the functioning of the expressly declared social public policy of this state in the matter of workers’ compensation. The conduct or operation of any business or undertaking without full compensation security, in continuing violation of social policy, is subject to imposition of business strictures and monetary penalties by the director.

In a proceeding before the superior court in matters concerned with this article, no filing fee is to be charged to the plaintiff, nor may any charge or cost be imposed for any act or service required of or done by any state or county officer or employee in connection with the proceeding.

Section 3714 provides that, in all cases involving the Uninsured Employers Fund or the Subsequent Injuries Fund as a party or involving death without dependents, is only to be heard for conference, mandatory settlement conference, standby conference, or rating calendar at the district Workers’ Compensation Appeals Board, except for good cause shown and with the consent of the director.

Section 3715 explains that any employee, with exceptions, whose employer has failed to secure the payment of compensation as required by this division, or his or her dependents in case death has ensued, may, in addition to proceeding against his or her employer by civil action in the courts, file his or her application with the appeals board for compensation and the appeals board is required to hear and determine the application for compensation. The board must make the award to the claimant as he or she would be entitled to receive if the employer had secured the payment of compensation as required.

Section 3716 states that, if the employer fails to pay the compensation required to the person entitled, or fails to furnish the bond required within a period of 10 days after notification of the award, the award, upon application by the person, is required to be paid by the director from the Uninsured Employers Benefits Trust Fund.

There is a statement of legislative intent that the Uninsured Employers Benefits Trust Fund is created to ensure that workers who happen to be employed by illegally uninsured employers are not deprived of workers’ compensation benefits, and is not created as a source of contribution to insurance carriers, or self-insured, or legally insured employers.

Section 3716.1 explains that, in any hearing, investigation, or proceeding, the Attorney General, or attorneys of the Department of Industrial Relations, are required to represent the director and the state. Expenses incident to representation of the director and the state, are reimbursed from the Workers’ Compensation Administration Revolving Fund.

The director assigns investigative and claims’ adjustment services respecting matters concerning uninsured employers injury cases. The director or his or her representative may make these service assignments within the department, or he or she may contract for these services with the State Compensation Insurance Fund, except insofar as these matters might conflict with the interests of the State Compensation Insurance Fund. 

Section 3716.2 requires the director, the director, as administrator of the Uninsured Employers Fund, to pay the claimant only the benefits allowed, recognizing proper liens that would have accrued against an employer properly insured for workers’ compensation liability. The Uninsured Employers Fund is not liable for any penalties or for the payment of interest on any awards.

However, in civil suits by the director to enforce payment of an award, the total amount of the award, including interest, other penalties, and attorney’s fees granted by the award, is required to be sought. Recovery by the director, in a civil suit or by other means, of awarded benefits in excess of amounts paid to the claimant by the Uninsured Employers Fund are paid over to the injured employee or his representative, as the case may be.

Section 3716.3 provides that, when the director obtains a judgment against an uninsured employer, the director may, in addition to any other remedies provided by law, enforce the judgment by nonjudicial foreclosure. 

In order to enforce the judgment by nonjudicial foreclosure, the director is required to record with the county recorder of any county in which real property of the parties against whom the judgment is taken is located, a certified copy of the judgment together with the director’s notice of intent to foreclose. The notice of intent to foreclose has to set forth the specified items of information.

Section 3716.4 states that, whenever a final judgment has been entered against a motor carrier of property subject to the jurisdiction and control of the Department of Motor Vehicles or a passenger stage corporation, charter-party carrier of passengers, or a household goods carrier as a result of an award having been made, the director may transmit to the Public Utilities Commission or the Department of Motor Vehicles, whichever has jurisdiction over the affected carrier, a copy of the judgment.

Section 3716.5 requires, in the payment of workers’ compensation benefits from the Uninsured Employers Fund, the director to do specified actions.

Section 3717 explains that a findings and award that is the subject of a demand on the Uninsured Employers Fund or an approved compromise and release or stipulated findings and award entered into by the director constitutes a liquidated claim for damages against an employer in the amount ascertained and fixed by the appeals board.

The appeals board is required to certify the same to the director who may institute a civil action against the employer in the name of the director, as administrator of the Uninsured Employers Fund, for the collection of the award, or may obtain a judgment against the employer. In the event that the appeals board finds that a corporation is the employer of an injured employee, and that the corporation has not secured the payment of compensation as required by this chapter, the specified persons are jointly and severally liable with the corporation to the director in the action.

Section 3717.1 provides that, in any claim in which an alleged uninsured employer is a corporation, the director may cause substantial shareholders and parents to be joined as parties. Substantial shareholders may be served as provided in this division for service on adverse parties, or if they cannot be found with reasonable diligence, by serving the corporation.

Section 3717.2 requires the appeals board, upon request of the director, to make findings of whether persons are substantial shareholders or parents. The director may proceed against substantial shareholders and parents without those findings of the appeals board.

Section 3718 provides that the cause of action and any cause of action arising out of law may be joined in one action against an employer. The amount recovered in an action from the employer must be paid into the State Treasury to the credit of the Uninsured Employers Fund.

Section 3719 states that any suit, action, proceeding, or award brought or made against any employer may be compromised by the director, or the suit, action, or proceeding may be prosecuted to final judgment as in the discretion of the director.

Section 3720 provides that, when the appeals board or the director determines that an employer has not secured the payment of compensation as required by this division or when the director has determined that the employer is prima facie illegally uninsured, the director may file in the counties where the employer’s property is possibly located, a certificate of lien showing the date that the employer was determined to be illegally uninsured.

Section 3720.1 provides that, in any claim in which the alleged uninsured employer is a corporation, for purposes of filing certificates of lien, the director may determine, according to the evidence available to him or her, whether a person is prima facie a parent or substantial shareholder. A finding that a person was prima facie a parent or substantial shareholder is made when the director determines that there is sufficient evidence to constitute a prima facie case.

Section 3720.2 specifies that, in a claim in which the uninsured employer or a substantial shareholder has caused to be recorded in a county a vesting deed conveying an ownership interest in real property after the date of the employee’s injury and prior to the recording of a certificate of lien in the county by the director, and provided that the property has not subsequently been transferred to a bona fide purchaser, the director may determine according to the evidence available to the director whether the transferor of the real property intended to retain a beneficial interest in the real property.

Section 3721 requires the director to provide the employer with a certificate of cancellation of lien after the employer has paid to the claimant or to the Uninsured Employers Fund the amount of the compensation or benefits which has been ordered paid to the claimant, or when the application has finally been denied after the claimant has exhausted the remedies provided by law in those cases, or when the employer has filed a bond in the amount and with the surety as the appeals board approves conditioned on the payment of all sums ordered paid to the claimant.

Section 3722 requires, at the time the stop order is issued and served, the director to also issue and serve a penalty assessment order requiring the uninsured employer to pay to the director, for deposit in the State Treasury to the credit of the Uninsured Employers Fund, the sum of $1,500 per employee employed at the time the order is issued and served, as an additional penalty for being uninsured at that time or issue and serve a penalty assessment order.

At any time that the director determines that an employer has been uninsured for a period in excess of one week during the calendar year preceding the determination, the director is required to issue and serve a penalty assessment order requiring the uninsured employer to pay to the director the greater two specified amounts. A penalty assessment issued and served by the director is in lieu of any other penalty issued and served by the director.

Section 3725 provides that, if an employer desires to contest a penalty assessment order, the employer is required to file with the director a written request for a hearing within 15 days after service of the order. Upon receipt of the request, the director must set the matter for a hearing within 30 days thereafter and notify the employer of the time and place of the hearing by mail at least 10 days prior to the date of the hearing. The decision of the director consists of a notice of findings and findings which is served on all parties to the hearing by registered or certified mail within 15 days after the hearing. 

Section 3726 specifies that, when no petition objecting to a penalty assessment order is filed, a certified copy of the order may be filed by the director in the office of the clerk of the superior court in any county in which the employer has property or in which the employer has or had a place of business. The clerk, immediately upon the filing, enters judgment for the state against the employer in the amount shown on the penalty assessment order.

Section 3727 provides that, if the director determines that an employer has failed to secure the payment of compensation as required by this division, the director may file with the county recorder of any counties in which the employer’s property may be located his certificate of the amount of penalty due from the employer.

The recorder must accept and file the certificate and record the same as a mortgage on real estate and file the same as a security interest and he must index the same as mortgage on real estate and as a security interest. Certificates of liens may be filed in any and all counties of the state, depending upon the information the director obtains concerning the employer’s assets.

Section 3727.1 authorizes the director from withdrawing a stop order or a penalty assessment order where investigation reveals the employer had secured the payment of compensation as required by law on the date and at the time of service of the order.

Section 3728 authorizes the director to draw from the State Treasury out of the Uninsured Employers Benefits Trust Fund, without at the time presenting vouchers and itemized statements, a sum not to exceed in the aggregate the level provided pursuant to Section 16400 of the Government Code, to be used as a cash revolving fund.

Section 3730 states that, when the last day for filing any instrument or other document pursuant to this chapter falls upon a Saturday, Sunday or other holiday, the act may be performed upon the next business day with the same effect as if it had been performed upon the day appointed.

Section 3731 states that any stop order or penalty assessment order may be personally served upon the employer either by manual delivery of the order to the employer personally or by leaving signed copies of the order during usual office hours with the person who is apparently in charge of the office and by thereafter mailing copies of the order by first class mail, postage prepaid to the employer at the place where signed copies of the order were left.

Section 3732 provides that, if compensation is paid or becomes payable from the Uninsured Employers Fund, award based upon stipulations, compromise and release executed on behalf of the director, or payments voluntarily furnished by the director, the director may recover damages from any person or entity, other than the employer, whose tortious act or omission proximately caused the injury or death of the employee.

The damages include any compensation, paid or payable by the director, plus the expense incurred by the director in investigating and litigating the workers’ compensation claim and a reasonable attorney fee for litigating the workers’ compensation claim. The director may compromise, or settle and release any claim, and may waive any claim, including the lien allowed by this section, in whole or in part, for the convenience of the director.

Section 3733 has a legislative finding and declaration. A person cannot be prohibited from receiving compensation paid or payable from the Uninsured Employers Benefits Trust Fund solely because of his or her citizenship or immigration status.