Uninsured Employer Penalties for Missing Workers’ Comp in California

First comes a stop order, then a penalty assessment, and if someone gets hurt, a lawsuit in which the employer carries the burden of proof. That’s the path for an uninsured California employer. Under Labor Code section 3710.1, the state can bar the company from using employee labor until it’s insured, and section 3722 adds per-employee penalties. An injured worker can also sue in court, where the law presumes the employer was negligent. The defenses to all of it depend on the company’s records.

What does California require?

Coverage for every employee. Labor Code section 3700 says “Every employer except the state shall secure the payment of compensation” either by being insured “by one or more insurers duly authorized to write compensation insurance in this state” or by obtaining a certificate of consent to self-insure from the Director of Industrial Relations.

There’s no minimum headcount in that sentence. A business with one employee has the same obligation as one with five hundred.

What happens when the state finds out?

The company can be shut down. Under section 3710.1, when an employer has failed to secure compensation, “the director shall issue and serve on such employer a stop order prohibiting the use of employee labor by such employer until the employer’s compliance with the provisions of Section 3700.” The order “shall become effective immediately upon service,” and employees affected by the shutdown “shall be paid by the employer for such time lost, not exceeding 10 days, pending compliance by the employer.” The employer can protest and get a prompt hearing, but the deadline is short.

The penalties come with the stop order. Section 3722(a) requires the director to assess “one thousand five hundred dollars ($1,500) per employee employed at the time the order is issued and served,” or to proceed under subdivision (b) instead. Subdivision (b) applies when the employer was uninsured for more than one week during the preceding calendar year, and the penalty is “the greater of (1) twice the amount the employer would have paid in workers’ compensation premiums during the period the employer was uninsured,” or “(2) the sum of one thousand five hundred dollars ($1,500) per employee employed during the period the employer was uninsured.”

The premium calculation is where payroll records pay off. Under section 3722(c), unless the employer proves its payroll “by a preponderance of evidence,” payroll for each uninsured week “shall be presumed to be the state average weekly wage multiplied by the number of persons employed by the employer at the time the penalty assessment is issued.” A company with mostly part-time or low-wage workers can be assessed on a much larger presumed payroll if it can’t document the real one.

What if an employee is injured while the company is uninsured?

The employee gets two paths, and can use both. Under section 3706, “If any employer fails to secure the payment of compensation, any injured employee or his dependents may bring an action at law against such employer for damages, as if this division did not apply.” The employee can also file for benefits with the Workers’ Compensation Appeals Board, which section 3715(a) allows “in addition to proceeding against his or her employer by civil action in the courts.”

The civil suit is the bigger risk, because the usual defenses are gone. Section 3708 says “it is presumed that the injury to the employee was a direct result and grew out of the negligence of the employer, and the burden of proof is upon the employer, to rebut the presumption of negligence.” It isn’t a defense “that the employee was guilty of contributory negligence, or assumed the risk of the hazard complained of, or that the injury was caused by the negligence of a fellow servant.” A judgment for the employee also “shall include a reasonable attorney’s fee fixed by the court,” under section 3709.

The presumption can still be rebutted. A defense built on evidence of how the injury actually happened, and whether it happened at work at all, remains available. So does a challenge to the damages claimed. And any compensation the employer has paid or secured is credited against the judgment under section 3709.

The workers’ compensation claim carries its own penalty. Once the appeals board finds the employer uninsured and the case is final, section 3722(d) imposes “two thousand dollars ($2,000) per each employee employed at the time of the claimed injury” in noncompensable cases and “ten thousand dollars ($10,000) per each employee employed on the date of the injury” in compensable ones. Under subdivision (f), penalties other than those under subdivision (b) are capped at $100,000.

Can the owners be held personally liable?

For a corporation, yes. When the Uninsured Employers Fund pays an injured worker’s award, the director can sue the employer to collect it. Under section 3717(a), if the employer is an uninsured corporation, its parent companies and its substantial shareholders “shall be jointly and severally liable with the corporation to the director in the action.” A substantial shareholder is one who owns “at least 15 percent of the total value of all classes of stock,” under subdivision (b).

Failing to carry coverage can also be a crime. Under section 3700.5(a), the failure to secure compensation “by one who knew, or because of his or her knowledge or experience should be reasonably expected to have known, of the obligation” is a misdemeanor punishable by county jail “for up to one year,” or a fine of up to double the premium that would have been due “but not less than ten thousand dollars ($10,000),” or both.

Does this apply to workers paid as contractors?

It can. Section 3357 says “Any person rendering service for another, other than as an independent contractor, or unless expressly excluded herein, is presumed to be an employee.” A company that carries no policy because it pays everyone on a 1099 is uninsured as to every worker who turns out to be an employee. An injury to one of those workers can bring the civil suit, the presumption of negligence, and the penalties described above, all from a classification decision.

How do the penalties compare?

What should the company do after a stop order or an injury claim?

1. Preserve the payroll and timekeeping records, every insurance policy and cancellation notice, the contractor agreements and 1099s, and the records of the injury and how it was reported.
2. Calendar the protest and appeal deadlines on the stop order, the penalty assessment, and any notice that the company was prima facie uninsured, because they’re short, and notify any insurer whose policy might have been in force.
3. Identify the witnesses to the injury and the people who handled the company’s insurance, and make sure no one takes action against the injured worker that could look like retaliation for the claim.
4. Pull the documents that show actual payroll for the uninsured period, since they control how the subdivision (b) penalty is calculated.
5. Secure coverage now and talk to a lawyer before responding to the Division of Workers’ Compensation, the injured worker, or the worker’s lawyer.

The firm’s page on workplace injury claim defense for employers describes how it handles these matters alongside related wage and classification claims.

Uninsured employer questions from California businesses

If we buy a policy today, do the penalties go away?

Not all of them. The stop order lasts only “until the employer’s compliance” with section 3700, so getting insured is how the company gets back to work. The penalty for the uninsured period still applies, but if the company is insured when it’s calculated, section 3722(c) bases the premium figure on prorating the current premium, which can be easier to defend than a presumed payroll.

Does the presumption of negligence mean the company automatically loses the lawsuit?

No. It shifts the burden to the employer to rebut the presumption, and it removes the contributory negligence, assumption of risk, and fellow servant defenses. The employee still has to prove an injury and damages, and the company can still contest whether the injury happened in the course of the work, what caused it, and how much the claimed damages are really worth.

Can the injured worker sue and also collect workers’ compensation benefits?

The statutes allow both. Section 3715(a) lets the employee file with the appeals board along with a civil action under section 3706. Under section 3709, compensation the employer paid or secured is credited against a civil judgment, and the Uninsured Employers Fund has a first lien for what it paid. Coordinating the two proceedings is a large part of defending the case.

Are the company’s officers personally liable?

Section 3717 makes parent companies and shareholders owning at least 15 percent jointly and severally liable with a corporate employer in the director’s action to recover an award paid by the Uninsured Employers Fund. Criminal liability under section 3700.5 applies to the person who knew or should have known of the obligation. Officers who aren’t shareholders aren’t named in section 3717, but the criminal statute isn’t limited to owners.

If your company has been served with a stop order or an injury lawsuit

If your company has received a stop order or a civil complaint from a worker injured while you were uninsured, the payroll records and the facts of the injury usually decide how much of the exposure holds up. Rosenberger + Kawabata represents employers defending employment lawsuits and claims through its business litigation practice, including claims involving uninsured employer penalties and workplace injury lawsuits. Contact Rosenberger + Kawabata online for a confidential consultation, or call (310) 894-6921.

Sources

The statutes are Labor Code sections 3357, 3700, 3700.5, 3706, 3708, 3709, 3710.1, 3715, 3717, and 3722.

This post is general information about California and federal employment law as of November 7, 2026. It is not legal advice, and reading it does not create an attorney-client relationship. Employment statutes, regulations, and court decisions change often, and the outcome of any claim depends on its facts. Past results do not guarantee future outcomes.