BILL ANALYSIS                                                                                                                                                                                                    



                                                                  SB 179
                                                                  Page  1

          Date of Hearing:   July 9, 2003

                     ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT
                                 Paul Koretz, Chair
                 SB 179 (Alarcon) - As Introduced:  February 12, 2003

           SENATE VOTE  :   21-14
           
          SUBJECT  :  Contracts for labor or services. 

           SUMMARY  :  Provides that any person or entity that enters into  
          specified contracts for labor or services, that knows or should  
          know that the contract does not provide sufficient funds to  
          comply with various laws, violates state law, and provides for a  
          rebuttable presumption, as provided.  Specifically,  this bill  :    


          1)Provides that any person or entity that enters into a contract  
            for labor or services for construction, farm labor, garment  
            manufacturing, janitorial services, or security guard  
            services, that knows or should know that the contract does not  
            provide sufficient funds to comply with various local, state,  
            and federal labor laws, violates state law.

          2)Establishes a rebuttable presumption that a person or entity  
            entering into such a contract for labor or services does not  
            violate the bill's provisions if the labor contract or any  
            material change to the labor contract is in writing, contained  
            in a single document and meets the following requirements;

          a)  Information identifying the person or entity or contractor  
            performing the services;

             b)   A description of the labor and services to be performed,  
               including a commencement and completion date;

             c)   Employer identification number for state tax purposes of  
               the contractor; 

             d)   Proof of workers' compensation coverage, including  
               insurance contact information;

             e)   For vehicles utilized for transportation in connection  
               with a service, detailed information relating to insurance  
               carrier and coverage;








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             f)   The address of any real property to be used to house  
               workers in connection with a contract or agreement;

             g)   The estimated number of workers to be employed, total  
               wages to be paid, and the pay dates;

             h)   Amounts of commissions or other payments made to the  
               contractor for services; and,

             i)   The estimated number and identification of independent  
               contractors to be utilized.

             j)   The signatures of all parties, and the date the contract  
               was signed.
          1)Provides that if some of the above required information is not  
            known at the time of contract, then the "best estimate"  
            available at the time is required to qualify for the  
            rebuttable presumption. 

          2)Requires written agreements to be kept by the person or entity  
            for at least four years after termination of the agreement. 

          3)Exempts a person or entity who executes a specified collective  
            bargaining agreement, or a person who enters into a contract  
            or agreement for labor or services to be performed on his or  
            her home residence or residences, under specified conditions. 

          4)Allows aggrieved employees to recover the greater of all  
            actual damages or $250 per employee for each initial  
            violation, and $1,000 per employee for each subsequent  
            violation, and recover costs and reasonable attorney's fees,  
            if the aggrieved employees plead and prove in a private court  
            action that they were also injured by a violation of a labor  
            law or regulation in connection with the performance of the  
            contract or agreement.

          5)Defines the terms "knows" and "should know."

           EXISTING LAW  provides a framework of labor law enforcement of,  
          among other things, minimum standards for wages, hours,  
          conditions of employment, and occupational safety and health by  
          the State Department of Industrial Relations (DIR).  The State  
          Employment Development Department (EDD) administers the  
          unemployment insurance, and state disability insurance programs,  








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          and requires that employers pay specified employee payroll  
          taxes. 

           FISCAL EFFECT  :  This measure was approved by the Senate  
          Appropriations Committee pursuant to Senate Rule 28.8. 

           COMMENTS  : 

           "Knowing" Standard  

          The "know" or "should have known" terms are common legal  
          standards by which an ordinary, reasonable person in like or  
          similar circumstances would have known.  There are many statues,  
          contained in various sections of California law, which contain a  
          similar or identical standard as this bill.

          This bill defines the terms as follows: 1)  The term "knows"  
          includes the knowledge, arising from a familiarity with the  
          normal facts and circumstances of the business activity engaged  
          in, that the contract does not include funds sufficient to allow  
          the contractor to comply with applicable laws; 2)  The phrase  
          "should know" includes the knowledge of any additional facts or  
          information, which would make a reasonably prudent person  
          undertake to inquire whether, taken together, such facts suggest  
          that the contract does not include funds sufficient to allow the  
          contractor to comply with applicable laws. 

           



          Recent Hearing on the Underground Economy  

          On March 18, 2003, the Senate Labor and Industrial Relations  
          Committee conducted an extensive hearing on the harmful effects  
          of the Underground Economy.  Among other things, it was  
          ascertained that lawless enterprises deprive state treasuries  
          over $4 billion in lost tax revenues. 

           Arguments in Support
            
           Generally, the author and supporters argue that this bill is  
          necessary to protect workers and law-abiding employers from  
          employers and contractors that knowingly enter into contracts  
          and agreements that are financially inadequate to permit  








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          compliance with applicable laws.  The purpose of this bill is to  
          establish state policy regarding financially insufficient  
          contracts in industries most associated with the underground  
          economy.  Supporters emphasize that this bill does not require  
          written contracts, rather it encourages them for sound business  
          practices. 

          Supporters cite evidence of underground economy enterprises that  
          are unfair competition to legitimate employers.  These  
          enterprises pay little in taxes and fail to abide by minimum  
          labor standards.  In the janitorial industry, supporters of this  
          bill argue that unethical contractors have been given the upper  
          hand in competing for cleaning contracts, and are ruining  
          law-abiding businesses.  Supporters cite an example of one  
          janitorial business being undercut 39 percent in contract  
          bidding by a competitor paying a monthly salary that is less  
          than minimum wage.  

          In the garment industry, the US Department of Labor (DOL)  
          estimates that in the Los Angeles area only one in three garment  
          manufacturers were in compliance with minimum wage and overtime  
          laws.  The DOL also reported that garment industry employers in  
          Southern California owed as much as 80 million dollars in unpaid  
          wages to garment workers.  The Garment Worker Center, writing in  
          support of this bill, argues that these numbers are particularly  
          compelling considering the survey was conducted among registered  
          garment manufacturers.

          In agriculture, various surveys show that most growers using  
          farm labor contractors were paying fees so low that either the  
          government was not receiving mandate taxes, or else the farm  
          workers were being paid below the minimum wage.  Labor law  
          violations in the construction industry typically involve use of  
          bad checks, cash pay, and no workers' compensation insurance  
          coverage. 

           Argument in Opposition
           
          Opponents from the covered industries argue that this measure  
          would require contracts to include several onerous and  
          burdensome requirements that a normal contract for labor in any  
          other industry would not require.  Small companies who are  
          suffering financially can ill afford additional costs of hiring  
          an attorney to draft a contract every time they use a specialty  
          contractor.  The California Restaurant Association argues that  








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          the process necessary to establish the rebuttable presumption  
          under this bill is particularly burdensome, for example, to a  
          small business contracting for one or two individuals to clean  
          only one restaurant.

          The California Farm Bureau argues in opposition that the  
          rebuttable presumption offered in this bill provides no  
          protection to an accused employer beyond what the law already  
          confers.  A defendant already enjoys the presumption of  
          innocence, the Bureau further argues, and the existence of a  
          written contract would not effect this process in any way.

          Other opponents focus on the "knowing" standard.  The California  
          Chamber of Commerce argues in opposition that this bill requires  
          a person or entity to "know" the intricate financial dealings of  
          a contractor in order to determine compliance with labor laws.   
          The Chamber further argues that the broad definition of "should  
          know" could be construed to include trivial information. 

          Public sector opponents of this bill argue that the California  
          Public Contract Code requires public agencies to award contracts  
          to the lowest responsible bidder.  As such, public agencies have  
          limited discretion in the competitive bidding process.  This  
          bill, opponents argue, places public agencies in the position of  
          complying with the Public Contract Code while making a judgement  
          as to whether the contracts provide sufficient funds.

          Prior Legislation:  As introduced, this measure is identical to  
          SB 1466 (Alarcon) of 2002 which was vetoed by the Governor.  The  
          stated reason given in the veto message was that other labor  
          legislation benefiting low wage workers, signed into law as  
          recently as 2002, needed to be given time to work. 

           REGISTERED SUPPORT / OPPOSITION  :

           Support 
           
          American Federation of State, County and Municipal Employees
          California Applicants' Attorneys Association
          California Labor Federation, AFL-CIO
          California Pipe Trades Council
          California Rural Legal Assistance Foundation
          California School Employees Association
          California State Association of Electrical Workers
          California Teamsters Public Affairs Council








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          Consumer Attorneys of California
          Garment Worker Center
          Gray Panthers
          International Association of Plumbing and Mechanical Officials
          Northern California District Council - ILWU
          Region 8 States Council of the United Food & Commercial Workers
          Service Employees International Union
          United Farm Workers of America
          Western States Council of Sheet Metal Workers
           
            Opposition 
           
          Agricultural Council of California
          Associated Builders and Contractors of California
          California Association of Sanitation Agencies
          California Building Industry Association
          California Chamber of Commerce
          California Farm Bureau Federation
          California Grocers Association
          California Manufacturers & Technology Association
          California Restaurant Association
          California State Association of Counties
          City of Buena Park
          County Sanitation Districts of Los Angeles County
          Western Growers Association
          Wine Institute


           Analysis Prepared by  :    Nick Louizos / L. & E. / (916) 319-2091