The not so Underground Economy

Friday, June 24, 2011 | 0

By Julius Young
Boxer & Gerson

An L.A. Times article caught my eye recently, "Illegal Vending: Unlicensed Businesses Flourishing in L.A. Area."

The article, by Alexandra Schmidt, details the growing number of front-yard household supply businesses, driveway taquerias, home-based car washes and other examples of people selling services and goods out of their neighborhoods.

Schmidt notes that most of these businesses are unlicensed and many violate zoning restrictions. And they don't pay taxes.

Schmidt's article focuses on some examples in predominantly Hispanic neighborhoods of East L.A. But it's likely that the same pattern is emerging in other areas with other ethnic groups in the state.

Although Schmidt's article didn't focus on it, it's almost certain that these small enterprises aren't carrying required workers' comp coverage. Yes, some are sole proprietorships or mom and pop vending and service efforts. But the ones who do have "employees" are unlikely to be carrying workers' comp.

As the economy has gotten tougher, people take risks, bending the legal rules. Permits, zoning, taxes, workers' comp are all legal niceities in such a world.

That's understandable, as poor people round the world resort to selling things to make ends meet.

That was evident to me in while in Rome several weeks ago. Some of the most spectacularly beautiful and popular piazzas such as Piazza Navone and the area surrounding the Spanish Steps have legions of vendors trying to sell roses or simple toys. Many of the vendors look vaguely North African, possibly Libyan.

I may have been one of the few trinket buyers at a piazza in Rome's Travastere district, across the Tiber. Never hurts to have a pair of royal blue glow-in-the dark Mickey Mouse ears.

As with the East L.A. vendors spreading their wares on corners, these sellers are not tethered to legal rules.

What's more disturbing for the workers' comp world, however, is the continuing problem of employer workers' comp fraud.

Within the last month we've seen the following:

• An Orange County couple, James and Dorothy Klinger, charged with fraud for failing to report $3 million in payroll to State Compensation Insurance Fund.
• The arrest of Emmett T. Kennedy, owner of Los Angeles based WWC Window Cleaning, on charges of underreporting payroll to save on workers' comp premiums.
• A no-contest plea by Grant Lemeur of West Sacramento, owner of an auto detailing business, Dream Car Solutions. Lemeur had been charged with forcing an employee to use private medical insurance for a work injury.
• An arrest in the case of Melinda Furnas of Colton, Calif. Furnas is alleged to have attempted to dissuade a worker at Clinical Laboratory of San Bernardino from filing for workers' comp.
• An arrest of a Shasta County couple, Valery and Earl Thompson, for alleged premium fraud. The Thompsons, owners of Russell/Thompson Inc., are alleged to have failed to report $900,000 of payroll to State Compensation Insurance Fund.