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; SB 179 Page 2 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, SB 179 Page 3 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 SB 179 Page 4 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 SB 179 Page 5 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 SB 179 Page 6 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