The California Department of Industrial Relations is facing serious questions over its use of money dedicated to the workers’ compensation system to pay for internal employee investigations, consultants and other expenses with little connection to workers’ compensation.

A Sacramento Bee investigation of DIR contracts from 2020 through 2026 found more than $30 million paid from the Workers’ Compensation Administration Revolving Fund (WCARF) for such purposes. Labor Code Section 62.5 limits use of the fund to administering workers’ compensation, a return-to-work program for injured workers and enforcement against uninsured employers, and specifically states that the money “may not be used or borrowed for any other purpose.”

Among the most troubling examples is the investigation of former Cal/OSHA district manager Michael Loupe. DIR reportedly spent an estimated $80,000 from the workers’ compensation fund investigating seven allegations against Loupe, including the bizarre accusation that he fired a toy bow and arrow at photographs of Gov. Gavin Newsom and other state officials. After an 18-month investigation, Loupe was cleared of every allegation.

Loupe, a decorated Army veteran and Bronze Star recipient, said the ordeal caused tremendous stress, contributed to a stroke and ultimately forced him to retire. Former Cal/OSHA compliance officer Garrett Brown called DIR’s use of the fund “a huge slush fund” and “a stunning breach of public trust.” 

The spending extends well beyond the Loupe investigation. DIR paid Sacramento-based Shaw Law Group $317,786 from WCARF to conduct employee investigations and has yet to produce records showing that the fund was reimbursed. More than $20 million in contracts also went to CPS HR Consulting, now headed by former DIR Director Katie Hagen. DIR maintains that using one fund initially and later transferring costs to the appropriate funding source is common practice. Yet despite repeated requests, the department has not demonstrated that the workers’ compensation fund was actually repaid. It said it expected to provide an update by Sept. 7.

These revelations are especially maddening, given the well-documented problems within Cal/OSHA. A recent state audit found severe staffing shortages and significant failures in the agency charged with protecting California’s workers, including thousands of inadequately investigated cases and approximately 1,800 cases closed without referral for possible criminal prosecution. At the same time, former Cal/OSHA employees who raised concerns about staffing, pay and agency operations have alleged that they faced retaliation and internal investigations. DIR apparently had substantial resources available for consultants and investigations of its own employees, even as Cal/OSHA struggled to adequately investigate serious workplace injuries and deaths.

CAAA has grown increasingly frustrated with Cal/OSHA and DIR’s failure to put California’s workers first. Injured workers and their advocates are continually told about limited resources, staffing shortages and administrative challenges, yet DIR apparently found millions of dollars in a fund dedicated to the workers’ compensation system to pay for consultants, human resources projects and investigations of its own employees.

Workers’ compensation funds exist to administer and strengthen the system serving injured workers, not to function as a convenient source of money for unrelated departmental expenses. California’s workers deserve a Department of Industrial Relations that treats those resources, and its responsibility to protect working people, with far greater care.

This opinion by the California Applicants' Attorneys Association communications team is republished, with permission, from the CAAA website.