The Contractors State License Board (CSLB) recently teamed up with the Contra Costa County District Attorney’s Office and the San Mateo Police Department in an undercover sting targeting unlicensed contractors in Walnut Creek.

On January 22 and 23, 13 individuals were cited with a Notice to Appear in criminal court after allegedly offering contracting services without a valid contractor’s license. One of these individuals was arrested on an outstanding warrant in Santa Clara County for contracting without a license.

Their bids ranged from $1,200 for a bathroom remodel to $12,000 for a painting project. Under California law, a contractor’s license is required for any construction project valued over $1,000, including labor and materials. If the project requires workers or a permit, a contractor’s license is required no matter the project cost.

The individuals could face legal consequences including administrative fines up to $15,000 and misdemeanor charges with sentences of up to six months in jail and a $5,000 criminal fine. Repeat offenders face harsher penalties, including a mandatory 90-day jail sentence and a fine of $5,000 or 20 percent of the contract price – whichever is greater.

Those caught in this sting may also face administrative or criminal charges for illegally advertising construction services without a valid license. California law requires all licensed contractors to display their license number on business materials, including advertisements, vehicles, and business cards. Unlicensed individuals may only advertise for jobs under $1,000 (including materials and labor), and they must clearly state in all advertisements that they are not licensed.

Additionally, one stop order was issued where the individual failed to provide workers’ compensation insurance for their employees. The individual had brought the worker to the sting site.

“CSLB remains committed to safeguarding homeowners from the dangers of hiring unlicensed contractors,” said CSLB Registrar David Fogt. “Educating consumers about the importance of working with licensed professionals is a top priority. We strongly encourage all California homeowners to verify a contractor’s license before beginning any construction project.”

Contra Costa District Attorney Diana Becton said: “Unlicensed contractors, or contractors who do not carry workers’ compensation insurance, put homeowners at risk of financial and safety hazards. Our office is committed to holding them accountable and ensuring that consumers are not taken advantage of.”

In August 2002, Michael Ayala was severely injured in a preplanned attack by inmates while at his job as a correctional officer at the Lancaster State Prison

He filed a workers’ compensation claim and alleged that the injury was caused by the serious and willful misconduct of his employer, California Department of Corrections and Rehabilitation (CDCR).

Labor Code section 4553 provides that ‘[t]he amount of compensation otherwise recoverable shall be increased one-half . . . where the employee is injured by reason of serious and willful misconduct” by the employer. Ayala and CDCR agreed that the injury caused Ayala 85 percent permanent disability, but they could not agree whether CDCR engaged in serious and willful misconduct.

A WJC found that CDCR did not engage in serious and willful misconduct. However, on reconsideration, the Workers’ Compensation Appeals Board (the Board) rescinded the decision and reversed, finding that CDCR had engaged in serious and willful misconduct. Over a dissent, a Board majority found that CDCR “failed to act on a credible threat of inmate violence that was specifically reported to be planned for the day of the attack and took the facility off lockdown despite this threat even though it possessed additional information . . . that this had long been planned.”

The Board’s determination established Ayala’s entitlement to an additional 50 percent of “compensation otherwise recoverable” per section 4553. Ayala and CDCR disagreed, however, about what constituted the “amount of compensation otherwise recoverable” under that section.

While he was temporarily totally disabled Ayala was paid his full salary because he was on industrial disability leave and enhanced industrial disability leave. However the WCJ found that the compensation upon which the penalty applies was what Ayala would have been paid in temporary disability. But on reconsideration, the Board again rescinded and reversed the workers’ compensation judge’s decision, this time finding that the base compensation was what Ayala was paid on industrial disability leave and enhanced industrial disability leave.

The Court of Appeal reversed in the published case of Cal. Dept. Corrections & Rehabilitation v. Workers’ Comp. App. Bd. -E079076 (August 2023).

The Court of Appeal concluded that “Compensation,” as the term is used in section 4553, includes only items provided by Division 4 of the Labor Code, but industrial disability leave is provided by the Government Code. Accordingly, the “amount of compensation otherwise recoverable” under section 4553 does not include industrial disability leave.

Ayala petitioned the California Supreme Court for review, supported by the Board as amicus curiae. The Supreme Court granted the petition. However it agreed with and affirmed the Court of Appeal in the case of Dept. of Corrections & Rehabilitation v. Workers’ Comp. Appeals Bd -S282013 (February 2024)

The question in this case is whether, for purposes of calculating the 50 percent premium under Labor Code section 4553, “compensation otherwise recoverable” includes industrial disability leave payments, a benefit that the Government Code makes available to certain public employees in lieu of workers’ compensation disability payments.

The Workers’ Compensation Appeals Board answered yes to this question. The Court of Appeal, however, disagreed, explaining that the board’s conclusion is plainly inconsistent with the statutory definition of “ ‘compensation’ ” as limited to “compensation under” the workers’ compensation law. (Lab. Code, § 3207.)

“We agree with the Court of Appeal and affirm its judgment.” The California Supreme Court went on to say “we are mindful of our obligation to give appropriate deference to the Board’s reasoned interpretations of the statute it administers. We have accordingly given careful consideration to the Board’s position that the section 4553 award should be calculated based on the IDL payments Ayala received.”

“But we cannot give effect to that position because it is contrary to the plain language of the statute. (Larkin, supra, 62 Cal.4th at p. 158.) The Board does not convincingly contend otherwise. Neither its decision in this case nor its amicus curiae submission to this court ever explains how the statutory definition of “compensation” as including only “compensation under” division 4 of the Labor Code can be stretched to cover IDL payments provided by the Government Code.”

“The Board’s position instead relies largely on … cases that did not purport to answer the question now before us, and whose holdings create no conflict with the straightforward reading of the statutory text we adopt today.”

Plaintiffs Michelle Arzate and others filed a class action complaint alleging that ACE American Insurance Company misclassified them as exempt employees and failed to provide them with the benefits required for nonexempt employees under state law, such as overtime pay and meal and rest periods. In an amended complaint, the plaintiffs added claims on an individual and representative basis under the Private Attorneys General Act of 2004.

The trial court granted the defendant’s motion to compel arbitration, but the court’s order did not address who was to commence the arbitration. The court ordered the parties “to submit a joint statement by September 8, 2023, confirming that an arbitrator has been selected and notifying the [c]ourt of the arbitration hearing date and the date of anticipated completion.”

The plaintiffs filed a petition for a writ of mandate challenging the trial court’s order, which was summarily denied on July 19, 2023 (Arzate v. Superior Court, No. B328586), followed by a petition for review in the Supreme Court, which was denied on September 20, 2023 (Arzate v. Superior Court, No. S281211).

On August 25, 2023, while their petition remained pending before the Supreme Court, the plaintiffs filed a motion in the trial court to lift the stay in the case. The plaintiffs argued that ACE was required to initiate the arbitration process, and that by failing to do so within the agreement’s 30-day time period, ACE had waived its right to arbitration.

On February 2, 2024, the trial court agreed with the plaintiffs’ assessment and granted the motion, finding that ACE’s inaction “was inconsistent with its right to arbitrate.”The trial court concluded that the obligation to commence arbitration lay with the defendant, ACE American Insurance Company, which had filed the motion to compel arbitration, rather than with the plaintiffs, a group of ACE employees who had consistently resisted arbitration. In the court’s view, ACE waived its right to arbitrate the dispute by failing to commence the arbitration.

The Court of Appeal disagreed with the trial court and reversed in the published case of Arzate v. ACE American Insurance Company -B336829 (February, 2025).

ACE argues that the trial court erred by finding it breached the arbitration agreements and waived its right to arbitration by failing to initiate arbitration within 30 days of the court’s order compelling arbitration. The Court of Appeal agreed.

The plaintiffs argue that ACE is the only party that “want[ed]” arbitration. ACE filed a motion to compel arbitration, whereas the plaintiffs always preferred to remain in court and resisted arbitration. The plaintiffs conclude that ACE was thus required to submit a demand within 30 days of the court order compelling arbitration. When it failed to do so, it breached the arbitration agreement and waived any right to arbitration.

The arbitration agreements at issue require any person having “employment related legal claims” to “submit them to . . . arbitration.” They also require “A party who wants to start the [a]rbitration [p]rocedure should submit a demand within the time periods required by applicable law.”

The agreements also specified that “In the event an employee demands arbitration, the employee must also send with the demand letter a check or money order for $200 made payable to the [AAA]. The $200.00 sent by the employee will be used to pay a part of the administrative fees charged by the [AAA], the organization that will be providing arbitration services. The remaining fees charged by AAA will be paid by ACE. In the case of a court ordered arbitration, the demand for arbitration must be filed in accordance with these rules and procedures within thirty (30) calendar days from the date of entry of the court order or such other time period as determined by the court.”

“In this case, the language regarding the party that ‘wants’ or ‘demands’ arbitration occurs in the context of an agreement by the plaintiffs, ‘in the event [they] have any employment related legal claims, [that they] will submit them to final and binding neutral third-party arbitration.’ ACE’s arbitration policy, which was incorporated in the arbitration agreements, made the point even clearer, stating that ‘arbitration by a neutral third party is the required and final means for the resolution of any employment-related legal claim not resolved by the internal dispute resolution processes,’ and that the policy ‘prevents both ACE and the employee from going to court over employment-related disputes.’ “

The plaintiffs also claim that ACE, by failing to initiate arbitration, acted unconscionably and “effectively block[ed] every forum for redress including arbitration itself.” However the Court of Appeal noted that “The reason this case has not proceeded in arbitration is that the plaintiffs have thus far declined to pursue it there. We now make clear that it is the plaintiffs who must prosecute their case, including submitting a demand as specified in the arbitration agreements, so that it may proceed.”

On June 16, 2022, Scott McNalley filed an application for adjudication, alleging that he sustained cumulative injury to his neck, back and foot while employed as a foreman by Taft Electric Company during the period of November 12, 2020 through November 12, 2021.

Taft Electric Company filed a petition for dismissal, alleging that the “parties were subject to the terms and conditions of the collectively bargained [ADR] agreement,” that, “although jurisdiction is conferred upon the Appeals Board by Labor Code Section 3201.5, all parties preserve their rights by following the alternative system procedures,” and that dismissal of the application for adjudication was therefore warranted.

The WCJ granted the petition for dismissal, stating that the claim was dismissed with prejudice on the grounds that the alleged ADR agreement established that “the WCAB lacks jurisdiction.” The order states that “timely objection within 10 days of service showing good cause voids the order.” On October 4, 2022, defendant’s attorney filed a proof of service of the order upon applicant and applicant’s attorney.

On August 21, 2023, McNalley filed a petition to have his claim removed from ADR and proceed with his claim at the WCAB. On April 17, 2024, the parties appeared for a mandatory settlement conference on the issue of the petition. The WCJ advised that he would issue a formal order denying McNalley’s petition, and he ordered the case off calendar. On November 8, 2024, the WCJ issued the Order.

McNalley Petitioned for Reconsideration of the “Order Denying Applicant’s Petition to Remove Claim from Alternative Dispute Resolution (ADR) and Affirming Previous Order Dismissing Case for Lack of Jurisdiction” issued on November 8, 2024, wherein the workers’ compensation administrative law judge (WCJ) denied applicant’s petition to remove his case from ADR and proceed before the WCAB and that the previous order dismissing the case for lack of WCAB remains in effect.”

His Petition was granted in the panel decision of McNalley v Taft Electric Company -ADJ16306548 (February 2025).

“Here, the record reveals that the WCJ granted the Petition for Dismissal without holding a settlement conference, framing the issues for trial, or holding a hearing in violation of Labor Code section 5502(d)(2). Applicant’s petition essentially sought to set aside the September 19, 2022 order dismissing the case for lack of jurisdiction. The result of this process was the Order served to terminate applicant’s case in a manner akin to summary judgment. However, pursuant to WCAB Rule 10515, summary judgment proceedings are not permitted in the workers’ compensation system and contested matters are to be tried by way of hearing on the record. (Cal. Code Regs., tit. 8, § 10515.)”

The WCAB panel noted that decisions of the Appeals Board “must be based on admitted evidence in the record.” (Hamilton v. Lockheed Corporation (Hamilton) (2001) 66 Cal.Comp.Cases 473, 476 (Appeals Board en banc).) Furthermore, decisions of the Appeals Board must be supported by substantial evidence. (Lab. Code, §§ 5903, 5952(d); Lamb v. Workmen’s Comp. Appeals Bd. (1974) 11 Cal.3d 274 [39 Cal.Comp.Cases 310]; Garza v. Workmen’s Comp. Appeals Bd. (1970) 3 Cal.3d 312 [35 Cal.Comp.Cases 500]; LeVesque v. Workmen’s Comp. Appeals Bd. (1970) 1 Cal.3d 627 [35 Cal.Comp.Cases 16].)

“We observe that “self destruct” orders such as the one here illustrate why use of this type of notice and order is disfavored. Whether good cause is presented is an issue of fact that requires a record, and because the moment that the order becomes “void” is dependent on whether and when a good cause objection is filed, it makes it difficult to determine exactly when or if the order is void.”

“Because the September 19, 2022 order dismissing the case and the November 8, 2024 Order were issued without a hearing, we are persuaded that the orders violate applicant’s right of due process. Accordingly, we will rescind the Order and return the matter to the trial level so that the record may be developed on the parties’ respective contentions regarding the enforceability of the ADR agreement.”