The Department of Industrial Relations, Division of Labor Standards Enforcement (DLSE) imposed a $179,329.60 penalty, pursuant to Labor Code section 3722, subdivision (b) against Aron’s Automotive for failure to maintain workers’ compensation insurance as required by section 3700. The employer unsuccessfully pursued an administrative appeal and later court appeals of this penalty.
Aaron’s Automotive has been in operation since 2007. On January 22, 2015, DLSE inspected and discovered the business had employees but had never acquired workers’ compensation insurance coverage. On February 9, 2015, Taylor obtained coverage through the State Compensation Insurance Fund, which was effective as of January 29, 2015.
At the administrative hearing, Taylor argued: (1) the term calendar year, as used in section 3722(b), means January 1 to December 31; (2) section 3722(b) violates the equal protection clause of the Fourteenth Amendment; (3) the penalty violates substantive due process; and (4) the penalty is an excessive fine imposed in violation of the Eighth Amendment.
On April 8, 2015, the hearing officer issued written findings and affirmed the penalty assessment. The hearing officer found: “[Taylor] did not have workers’ compensation insurance for the period of February 27, 2012 through January 29, 2015 and had 11 employees during that time period.” The hearing officer concluded Taylor’s constitutional arguments provided no basis for defense in an administrative hearing and also determined the term calendar year, as used in section 3722(b), means “one year back from the date that the director determines an employer has been uninsured on the date the citation is issued.”
Taylor filed a petition for writ of administrative mandamus. A demurrer to the petition was granted without leave to amend. The Court of Appeal affirmed the dismissal in the partially published case of Aaron Taylor v Department of Industrial Relations.
The parties frame this case as primarily a dispute regarding the meaning of “calendar year” in section 3722(b).
It is undisputed that the date of “the determination” is the date the penalty assessment citation issued – in this case, February 27, 2015. Taylor maintains the term calendar year necessarily means January 1, 2014, through December 31, 2014, and that “this is the required statutory interpretation of this term no matter how absurd the result of that interpretation . . . .”
DLSE, on the other hand, insists calendar year means “the one-year period immediately before the date that the director determines that an employer is uninsured” – or, in this case, February 27, 2014, to February 27, 2015. DLSE analogize section 3722(b) to “a one year statute of limitations on issuing a citation.” (See Code. Civ. Proc., §340, subds. (a), (b).) In other words, section 3722(b) allows a citation to be issued “if the DLSE determines that an employer was uninsured [in excess of one week] during the past year, whether or not the employer subsequently obtains insurance.”
The interpretation of section 3722(b) is a question of first impression. The Court of Appeal concluded that “calendar year”, as used in section 3722(b), means the 12-month period immediately preceding the determination. In this case, a triggering event of uninsurance did occur between February 27, 2014, and February 27, 2015. Therefore, this construction of the statute does not in any way invalidate the penalty imposed.