Running a business can be a very expensive proposition, so much so that at times everything beyond making the payroll and paying the rent begins to seem like an unnecessary cost. Business owners have to be smart when it comes to keeping costs down if they want to survive in a competitive market and a rocky economy. That said, some cost-cutting measures are simply not worth the risk. In particular, the state of California labor law and its enforcement by the local authorities make it clear that those seemingly expendable costs are no laughing matter.

Just a few months ago, a small business owner was jailed for failing to properly provide workers compensation insurance to his employees. Najib Mohammad Samara, owner of the Tile Gallery Plus in Hesperia, was held at the San Bernadino County jail in Victorville, with bail set at $25,000. The Hesperia county business owner was first investigated in January of last year for alleged workers compensation insurance law violations, but at his arraignment he was able to produce documents showing that he had purchased the required insurance for his employees. Nevertheless, a follow-up investigation uncovered the fact that the business owner had failed to make the required payments on the policy, and consequently had allowed it to lapse.

Now Samara faces a fine of up to $10,000 and up to one year in prison. Furthermore, the California Department of Standards and Labor Enforcement (DSLE) issued a “stop order,” forbidding the employees of the business from going to work pending resolution of the case. As a result, the entire series of events seems to have caused Samara substantially more than if the requisite workers compensation insurance policy had been purchased up front and maintained.

Samara’s circumstances point to the importance of understanding and complying with California’s workers compensation insurance laws, not to mention with California labor law more generally. California maintains some of the toughest labor laws in the country. While businesses tend to view these laws as obstacles to running an efficient business, there are of course practical reasons for the laws: namely, to keep employees safe while on the job. Yet regardless of the law’s rationale, employers need to know that the short-term gains associated with shirking responsibilities like workers compensation insurance are far outweighed by the costs associated with prosecution.
More importantly, the risk remains even where employers try to take temporary, stop-gap measures. Samara’s purchase of insurance and subsequent decision not to pay the premiums clearly did very little to protect against prosecution, and provides a prime example of this. Yet as with most regulations, the devil is in the details, and California strict enforcement of its labor laws does not preclude employers from finding creative solutions that allow them to meet their many obligations while also turning a profit.

Those employers facing these sorts of issues should seriously consider consulting a licensed attorney, but especially an attorney that has experience with California labor law and workers compensation law.