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