Two recent criminal cases out of Southern California spotlight the ongoing problem of employer workers’ compensation premium fraud and the harm it causes to both injured workers and law-abiding businesses.

In San Diego County, the owner of GPS Plumbing pleaded guilty to underreporting millions in payroll, leading to over $1 million in restitution owed for unpaid workers' compensation premiums. 

In Los Angeles, two business owners were sentenced after investigators uncovered a $21 million underreporting scheme across their delivery companies.

In both cases, employers fraudulently cut corners to avoid paying for the insurance coverage their workers were legally entitled to.

Misclassifying employees, underreporting payroll or failing to obtain workers’ compensation coverage exposes workers to significant risks while giving dishonest employers an illegal competitive advantage. These criminal practices drive down overhead, enabling fraudulent companies to submit lower bids to undercut their law-abiding competitors.

According to the California Department of Insurance, insurance fraud, including employer premium fraud, costs the state about $15 billion annually. It’s the second-largest economic crime in California, behind tax evasion.

Unfortunately, while the system sees massive losses due to employer schemes, public focus too often remains fixated on the myth of rampant worker fraud despite studies and audits showing it accounts for less than 3% of claims in California.

This misinformation has consequences. Irresponsible rhetoric from the insurance industry fuels suspicion toward injured workers, casting doubt on legitimate claims. CAAA members know firsthand that most applicants seek nothing more than the medical care and the temporary income they need to get back on their feet. Employer fraud not only harms workers directly but also undermines public trust in the very system designed to protect them.

Attorneys representing injured workers should remain vigilant and help raise awareness about the real face of workers’ compensation fraud. When we hear about employer misconduct — from misclassified employees to suspicious payroll discrepancies — we must encourage reporting to the appropriate agencies. Reports can be made anonymously through the Department of Insurance’s fraud hotline at 800-927-4357 or insurance.ca.gov.

The fight against fraud must focus on its biggest offenders, not the injured workers simply trying to heal and survive.

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