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Penalties for not having workers' comp in California

By Richard Vaughn CPCU, ARM, AIS. Reviewed November 8, 2026. Richard is an insurance professional, not an attorney. This page explains the law; it is not legal advice.

Three layers of exposure

An uninsured California employer faces three separate consequences that stack: a criminal case, administrative penalties from the Department of Industrial Relations, and personal liability for any injury. They come from different sections of the Labor Code, are pursued by different agencies, and none of them cancels another. An employer who goes without coverage to save premium is making a bet against all three.

The crime

Failing to secure the payment of compensation is a misdemeanor if the employer knew, or should reasonably have known, of the obligation (Labor Code §3700.5(a)). The penalty is up to one year in county jail, a fine of up to double the premium that would have been due during the uninsured period but not less than $10,000, or both. A second or later conviction carries up to a year in jail and a fine of three times the premium that would have been due, not less than $50,000 (Labor Code §3700.5(b)), and the costs of investigation are added (Labor Code §3700.5(c)). Prosecutions are brought by district attorneys, often after a referral from the Labor Commissioner or an injured worker's claim, and the "should have known" standard means that an employer who never asked does not have a defense.

The stop order

When the Director of Industrial Relations finds an employer uninsured, the Director issues a stop order prohibiting the use of employee labor until coverage is secured. It is effective immediately on service, and the employer must pay affected employees for the time lost, up to 10 days, while it complies (Labor Code §3710.1). The employer can protest in writing within 20 days and is entitled to a hearing within five days of the request, with findings served within 24 hours and review in superior court within 45 days. In practice a stop order closes the job site or the shop that day, and the fastest way out is a bound policy.

Penalty assessments

With the stop order comes a penalty assessment of $1,500 for each employee employed at the time the order is served (Labor Code §3722(a)). Alternatively, if the Director finds the employer was uninsured for more than a week in the prior calendar year, the assessment is the greater of twice the premium the employer would have paid during the uninsured period or $1,500 per employee employed during it (Labor Code §3722(b)); the premium is computed from the employer's current policy prorated over the uninsured weeks or, if still uninsured, from payroll at the State Fund manual rate, with payroll presumed to be the state average weekly wage per employee if the employer cannot prove otherwise (Labor Code §3722(c)).

If an employee files a claim and the appeals board finds the employer was uninsured, a further assessment follows once the case is final: $2,000 per employee if the claim is found not compensable, $10,000 per employee if it is compensable (Labor Code §3722(d), (e)). The employer must file a verified employee count within 10 days of the board's findings or the Director uses whatever information is available. Assessments other than the twice-the-premium assessment are capped at $100,000 (Labor Code §3722(f)), and all of them are paid into the Uninsured Employers Fund. The procedure for issuing and contesting penalty assessment orders is in the Director's regulations (8 CCR §15575).

The injured worker's claim

An uninsured employer is liable for every benefit an insurer would have paid: medical treatment, temporary and permanent disability, the voucher and death benefits. The worker files at the Workers' Compensation Appeals Board naming the employer and the Uninsured Employers Benefits Trust Fund (UEBTF), and must serve the employer with the application and a special notice of lawsuit (Labor Code §3716(d)). If the employer does not pay the award or post a bond within 10 days of notice, the Fund pays the worker (Labor Code §3716(a)) and then recovers from the employer, with liens on property and the ability to pursue the business's owners. The Fund does not cover most cumulative trauma or occupational disease claims against uninsured employers (Labor Code §3716(b)), which leaves the employer alone with those.

The civil suit

The workers' compensation bargain is that the employer pays benefits without regard to fault and in exchange cannot be sued for the injury. An employer that has not secured compensation loses the second half. The injured worker or dependents may bring an action at law for damages as if the workers' compensation law did not apply (Labor Code §3706), in addition to the compensation claim. In that suit the law presumes the injury was a direct result of the employer's negligence, puts the burden on the employer to prove otherwise, and takes away the defenses of contributory negligence, assumption of risk and the negligence of a fellow employee (Labor Code §3708), so the question is usually only the amount. Damages in a civil suit include pain and suffering and full wage loss, none of which the compensation system pays, so the civil exposure is normally the largest of the three.

What to do if you are uninsured now

Bind a policy today; the stop order lifts on proof of coverage and every day uninsured adds to the premium-based penalties. Expect the insurer to ask about the uninsured period. Do not backdate anything. If an employee has already been hurt, authorize medical treatment immediately, report the injury on Form 5020 to the Department of Industrial Relations, and get counsel; the compensation claim will proceed at the appeals board with you as the payer, and how you handle the first weeks affects both the award and the penalty assessment. The lapsed coverage page covers the narrower case of a policy that cancelled for non-payment.

Questions people ask

Richard Vaughn CPCU, ARM, AIS

Richard Vaughn spent 35 years in commercial property and casualty insurance, most of it in workers' compensation: running a self-insured group, auditing premiums, and implementing claims systems for carriers and third-party administrators. He is not an attorney. dickvaughn.com