State Agencies Try to Dig Up the 'Underground Economy'

A coalition of state agencies in Sacramento concentrates on exposing California's "underground economy." Where you see cheap products, they see fraud, paycheck ripoffs and a higher tax bill for you. KPCC's State Capitol reporter Julie Small offers this look at California's Economic and Employment Enforcement Coalition.

Julie Small: They call it the "Triple 'E' Coalition," and it's made up of investigators from state agencies you probably don't know very well. There's the Division of Labor Standards Enforcement, the Division of Occupational Safety and Health, and a few others. They're the guys who make sure labor and workplace safety laws are followed. Bob Jones is with the Triple "E" Coalition. He tracks down and busts employers in the "underground economy."

Bob Jones: There's about, over a six-and-a-half-billion dollar underground economy, which is businesses that don't report their employees, don't report their income, use cash pay to pay for the employees, don't have insurance that's required by law. So basically they are the industries that can operate without compliance with any of the state laws.

Small: Garment factories, restaurants, car washes, farms, horse racing tracks, janitorial services, construction, businesses with lots of low-wage workers. Some have a history of violating workers rights and evading state taxes, licenses, and registration fees. But why should you care? All that evading and avoiding means stuff is cheap. But Bob Jones says you should care when businesses dodge taxes.

Jones: The big problem with that is that it makes it impossible for the companies that do compete to be able to compete on a level playing field. And so in a lot of industries, if in fact the employers are not complying with state law, not paying minimum wage, not paying taxes, that those industries will put the industries that are complying out of business.

Small: To make sure that doesn't happen, California spent six-and-a-half-million dollars this year to chase down businesses that don't pay taxes. Dave Dorame coordinates the sweeps. In December, the Triple "E" Coalition sent field agents on a sweep through garment factories in L.A.

Dave Dorame: Well we found an employer for example that had 89 workers. This employer was not registered by the state of California. This employer was not paying the proper wages. This employer did not have workers compensation insurance.

Small: Dorame says those are all typical violations. Most of the employees had been on the job just two weeks, and hadn't been paid.

Dorame: So what we had to do, first work with the employer to convince the employer that he had to pay all the workers on site. Well, we were very successful in getting each and every employee paid. The employer brought about $60,000 to pay everyone, wages owed to them. Then we proceeded to shut down the operation, and we issued an $89,000 citation for work comp, cash pay, and we confiscated their goods.

Small: The Coalition sometimes recovers taxes, seizes property, or wins settlements. But the main purpose of the investigations is to let workers know they have rights. Dorame says illegal operators in agriculture sometimes put their own field hands in harm's way.

Dorame: They're driving their equipment on the field, the tractors, and there are no drivers. They put it in gear and they let the tractor pull the conveyor with 20 to 30 workers, you know, doing their packing and sorting on top of this packing plant, and that's very dangerous because there's been some fatal injuries in that industry.

Small: Unlicensed employers usually don't buy worker's compensation insurance. The Triple E's Bob Jones says the cost of treating those injured workers falls on everyone in California.

Jones: The taxpayers are the ones that suffer from this type of activity because they have to pick all those things that the employer would normally have to pay for, through increased taxes on themselves, or on increased taxes on the legal operators, which then raises prices.

Small: The state agencies that make up the Triple "E" Coalition say penalizing or prosecuting a few businesses in the "underground economy" will scare many more into paying taxes and complying with workplace safety laws. The Coalition's Bob Jones says those laws protect workers, and they protect your wallet.