Insurance Commissioner Dave Jones announced the recent arrest of two business owners for workers’ compensation fraud.  As alleged, the business owners lied to their insurer about the nature of the work their employees performed, claiming it was only inside electrical work.  This resulted in a lower premium for the owners and tragedy for the family of a worker who died as a result of an injury sustained at work.

The worker was run over by a company car as he was working on a project to repair street lights in Redwood City.  After his death, a claim was filed by his family and the fraud was discovered.  The insurance company rescinded the policy and family was left without a death benefit.

The money saved by the husband-and-wife business owners was roughly $11,500 for the years of 2007 through 2009.

Fraud is fraud, regardless of who commits the act.  In this case, the fraud alleged is the employer’s and while enjoying the benefit of a smaller overhead as compared to honest competitors, the business owners shifted a considerable amount of risk to the worker’s family.

If everything is true as alleged, then this is a reckless act by an employer, but also reflects the desperation many California small business owners face.  Without making any sort of excuses for fraud, we must recognize why the “underground” economy is such a tempting one for business owners.  Somehow, the climate in California makes honest and open business practices less appealing than the “underground” or moving out of state.

By all means, prosecute the fraudsters of California, whether they are employee or employer, but let’s not forget that there are carrots as well as sticks – a more business and employer-friendly California will see less fraud and less of such harsh results for the families of injured workers.