DIR Releases First-Year Results of Effort

Targeting the Underground Economy

SAN FRANCISCO -- In the first year of the Joint Enforcement Strike Force (JESF) targeting the underground economy, the Department of Industrial Relations found labor law violations at nearly half of the businesses inspected, DIR Director Lloyd W. Aubry announced.

During 1994, the JESF inspected 2,860 businesses. Investigators with the Labor Commissioner's Office cited labor standards violations at 1,413, or 49 percent, of the locations. Total penalties assessed for labor law violations were over $4.4 million.

"The businesses inspected were identified through leads developed by multiple agencies sharing information," Aubry said. "The fact that nearly half had violations demonstrates the effectiveness of our identification efforts, as well as the problem of businesses operating in the underground economy. These underground businesses cut corners by not paying taxes and not obeying labor laws, thus cheating taxpayers and employees while undercutting their law-abiding competition."

The JESF issued a total of 1,413 Labor Code citations during 1994. Of these citations, 1,023 were in the automotive repair industry, 135 were in the garment industry, 140 involved the construction industry, and 115 were issued against employers in other industries. Violations included failure to carry workers' compensation insurance, illegal payment of wages in cash without proper recordkeeping or payroll deductions, and the failure to pay minimum wage.

Under state law, all employers must have workers' compensation insurance for every employee. Employers found lacking proper coverage face a fine of $1,000 per employee and an order from the Labor Commissioner prohibiting them from using any labor until they secure adequate coverage. If an employee is injured at an uninsured business, the taxpayers become liable for the injury through the Uninsured Employers Fund. Employers may legally pay employees in cash, provided that proper payroll deductions are made and employees are given an itemized listing of deductions.

Governor Pete Wilson created the JESF by Executive Order in 1993 to target abuses in the underground economy. The JESF began operation in January, 1994. Participating agencies include DIR, the Employment Development Department, the Department of Consumer Affairs, the Office of Criminal Justice Planning, the Board of Equalization, the Franchise Tax Board, and the Department of Justice.

The JESF has primarily focused its activities in the construction and automotive repair/auto body shop industries. The strike force also has targeted underground activity in the garment and restaurant industries.

While the JESF investigates individual reports of underground activity throughout the state, it largely operates by conducting coordinated strikes in particular regions at particular times. In its first year, the JESF conducted strikes in San Jose, San Diego, Monterey, Riverside, San Francisco, Long Beach, Oakland, Downey, Modesto, San Diego, and San Luis Obispo.

Last year, the Governor signed Senate Bill 1490, which codified the JESF with a sunset date of January 1, 2000. Before enactment of the legislation, DIR entered into a Memorandum of Understanding with the Franchise Tax Board, under which the tax collection agency assumed responsibility for collection of penalties assessed by the JESF.

In order to implement SB 1490, the Governor's proposed budget for DIR for 1995-96 includes an additional $1.122 million and four positions for the Labor Commissioner's Office.

Joint Enforcement Strike Force (JESF)

1994 Activity Involving Labor Code Citations

Investigations Labor Code Penalties ($)

citations (%)


San Jose 85 53 (62) 141,350

San Diego 130 46 (35) 189,500

Monterey 92 30 (33) 58,850

Riverside 137 65 (47) 200,000

San Francisco 117 45 (38) 103,250

Long Beach 147 67 (46) 158,000

Oakland 121 38 (31) 106,350

Downey 113 78 (69) 344,700

Downey II 45 33 (73) 214,650

Modesto 91 63 (69) 172,200

San Diego II 20 11 (55) 60,200

Modesto II 68 35 (51) 183,750

San Luis Obispo 78 19 (24) 50,000

TOTAL 1,244 583 (47) 1,982,800


NORTH 591 253 (43) 664,050

SOUTH 1,025 577 (56) 1,759,300

TOTAL 1,616 830 (51) 2,423,350


TOTAL 2,860 1,413 (49) 4,406,150

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