BILL ANALYSIS                                                                                                                                                                                                    



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          Date of Hearing:   June 17, 2008

                           ASSEMBLY COMMITTEE ON JUDICIARY
                                  Dave Jones, Chair
                    SB 569 (Steinberg) - As Amended:  June 4, 2007

           SENATE VOTE :   24-13
           
          SUBJECT  :   PUBLIC WORKS: PREVAILING WAGE ENFORCEMENT

           KEY ISSUE  :  SHOULD PREVAILING WAGE LAW ENFORCEMENT BE ENHANCED  
          BY IMPROVING PUBLIC ACCESS TO CONTRACTING AND PAYROLL RECORDS,  
          EXTENDING THE STATUTE OF LIMITATIONS FOR CLAIMS, ALLOWING  
          EMPLOYEES TO RECOVER MONIES DUE INDEPENDENTLY OF THE LABOR  
          COMMISSIONER, AND MEASURES TO PROMOTE ENFORCEMENT EFFORTS BY  
          JOINT LABOR-MANAGEMENT COMMITTEES?

                                      SYNOPSIS
          
          This measure is sponsored the State Pipe Trades Council to  
          enhance enforcement of current law requiring contractors on  
          public works construction projects to pay their employees  
          prevailing wages.  Supporters contend that existing enforcement  
          resources are inadequate to monitor and enforce prevailing-wage  
          requirements, with the result that unscrupulous contractors  
          underpay their employees and obtain an unfair advantage in  
          bidding against honest contractors.  Inadequate enforcement of  
          prevailing wage laws, supporters likewise contend, reduces the  
          tax revenue the State would otherwise receive from employees.   
          Specifically, this bill seeks to strengthen prevailing-wage  
          enforcement in a number of ways, including by creating a  
          database of licensed contractors on public works projects,  
          improving the information currently provided to joint  
          labor-management committees that monitor prevailing-wage  
          compliance, extending the statute of limitations and remedies  
          for certain actions to enforce the laws, and by allowing  
          individual employees to recover for violations irrespective of  
          inaction by the Labor Commission.  Opponents representing  
          contractors and subcontractors complain that the bill will  
          increase employment-related lawsuits, will place significant and  
          unnecessary new burdens on contractors and awarding agencies,  
          and unfairly penalize general contractors for the wrongs of  
          their subcontractors.

           SUMMARY  :  Revises various provisions of law related to  








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          enforcement of the obligation to pay prevailing wages on public  
          works projects.  Specifically,  this bill  :   

          1 Requires a party awarding a public works contract, for which  
            the overall construction cost is over $100,000, to report to  
            the Contractors' State License Board (CSLB) the name and  
            license number of each contractor and subcontractor performing  
            work, and the name, location, and identification number of the  
            public works project for which the contract is awarded, and  
            provides that the CSLB shall post the information on its  
            Internet web site.

          2)Specifies that the liability of a contractor and subcontractor  
            for amounts due pursuant to a final order or judgment in an  
            action to enforce the requirements of existing law does not  
            depend on the party bringing the action, provided however that  
            the Labor Commissioner shall first exhaust reasonable efforts  
            to collect from the subcontractor before pursuing recovery  
            against a contractor, and provided further that a contractor  
            shall not be liable for penalties incurred as a result of a  
            subcontractor's failure to pay prevailing wages, except as  
            specified.

          3)Extends the statute of limitations for a joint  
            labor-management committee to bring an action against a  
            contractor or subcontractor who fails to pay prevailing wages  
            from 180 days after the filing of a valid notice of completion  
            to not later than four years after the violation occurs.

          4)Clarifies that a contractor is not liable for the violations  
            of a subcontractor in an action filed more than 180 days after  
            the filing of a valid notice of completion, as specified, or  
            not later than 180 days after acceptance of the public work,  
            whichever occurs later.

          5)Requires a court to enjoin violations, award unpaid wages for  
            distribution to employees, and award the joint  
            labor-management committee reasonable attorney's fees, costs,  
            and expenses incurred in maintaining the action.

          6)Authorizes a member of the public to request copies of  
            certified payroll records directly from the contractor or  
            subcontractor - rather than solely from the public entity that  
            awarded the contract or other public agency as under current  
            law - at the expense of the requesting party (records obtained  








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            from the government would be at no cost), but provides that a  
            contractor or subcontractor shall not be required to provide  
            members of the general public access to the records maintained  
            at the principal office.

          7)Specifies that copies of records provided to joint  
            labor-management committees shall be redacted as to social  
            security numbers, but not names. 

           EXISTING LAW  : 

          1)Defines a "public work" as construction, alteration  
            demolition, installation, or repair work that is done under  
            contract and that is paid for, in whole, or in part out of  
            public funds.  (Labor Code Section 1720.)

          2)Requires contractors engaged in public works to pay employees  
            the prevailing wage, as determined by the Director of the  
            Department of Industrial Relations.  (Labor Code Sections  
            1770, 1771, 1774.)

          3)Requires the Labor Commissioner to issue a civil wage and  
            penalty assessment against a contractor or subcontractor or  
            both, if the Labor Commissioner determines, after  
            investigation, that the contractor or subcontractor violated  
            the laws regulating public works contracts.  (Labor Code  
            Section 1741.)

          4)Provides that the contractor and subcontractor are jointly and  
            severally liable for all amounts due pursuant to a final order  
            or a judgment on that final order, but requires the Labor  
            Commissioner to collect amounts due from the subcontractor  
            before pursuing the claim against the contractor.  (Labor Code  
            Section 1743.)

          5)Authorizes a joint labor-management committee to bring an  
            action against any employer who fails to pay the prevailing  
            wage to its employees, not later than 180 days after the  
            filing of a valid notice of completion in the county  
            recorder's office in each county in which the public work was  
            performed, or not later than 180 days after the acceptance of  
            the public work, whichever is later.  (Labor Code Section  
            1771.2.)

          6)Requires each contractor and subcontractor on a public works  








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            project to keep accurate payroll records that may be accessed  
            by the public through the awarding body or state agencies, as  
            specified.  Provides that a request for a certified copy of  
            payroll records may be made through the body awarding the  
            contract, the Division of Apprenticeship Standards, or the  
            Division of Labor Standards.  (Labor Code Section 1776(e).)

           FISCAL EFFECT  :  According to the Senate Committee on  
          Appropriations, this bill will result in costs related to  
          information reporting/Website maintenance ranging to $200,000 in  
          2008-09.  In addition, there are unknown, likely significant  
          costs to respond to contract or wage inquiries.

           COMMENTS  :  In support of the bill, the author states, "Current  
          law requires contractors on public works construction projects  
          to pay their employees prevailing wages.  But existing  
          enforcement resources, public and private, are inadequate to  
          monitor and enforce prevailing-wage requirements.  As a result,  
          unscrupulous contractors can underpay their employees and get an  
          unfair advantage in bidding against honest contractors.   
          Underpaying prevailing wages reduces the tax revenue the State  
          would otherwise receive from the employees of dishonest  
          contractors.  The taxpayers fund public projects based on  
          prevailing-wage compliance - they should get what they pay for,  
          both in taxes and quality construction."

          According to the author, "SB 569 would make California's  
          prevailing wage law mean something by making it more transparent  
          and enforceable.  Particularly as the state embarks on a number  
          of significant public works projects made possible by  
          California's recently-approved public works bonds, we owe it to  
          voters and our constituents to ensure that the projects are  
          completed by highly-trained, competent, quality workers who are  
          paid a fair prevailing wage.  Tax receipts from prevailing wages  
          will be higher than they otherwise would be from unscrupulous  
          payment of wages lower than required.  Bad actors put reputable,  
          law-abiding contractors at a bidding disadvantage."

          The sponsor, California State Pipe Trades Council, comments that  
          the bill is needed because existing enforcement resources are  
          inadequate to monitor and enforce prevailing-wage requirements.   
          As a result, the sponsor contends, unscrupulous contractors can  
          underpay their employees and get an unfair advantage in bidding  
          against honest contractors.  
           








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          The bill makes a number of changes to provisions of existing law  
          related to the enforcement of state prevailing wage laws.  These  
          changes may be classified into four main categories: (1) CSLB  
          oversight; (2) contractor and subcontractor joint and several  
          liability; (3) joint labor-management committee actions; and (4)  
          access to certified payroll records.

           Collection And Reporting Of Information By Contractors State  
          Licensing Board.   The Contractors State License Board (CSLB)  
          licenses and regulates contractors in 43 classifications that  
          make up the construction industry.  There are believed to be  
          approximately 280,000 licensed contractors in the state.  The  
          CSLB has established a Statewide Investigative Fraud Team  
          (SWIFT) that focuses on the underground economy and on  
          unlicensed contractors.  These units conduct stings and sweeps  
          to help curtail illegal contracting by citing those who are not  
          licensed.

          Under this bill a public entity awarding a large public works  
          contract (overall construction costs over $100,000) would be  
          required to report to the CSLB the name and license number of  
          each contractor and subcontractor performing work, and the name,  
          location, and identification number of the public works project  
          for which the contract is afforded.  The bill requires this  
          information to be submitted not later than 30 days after the  
          information becomes available to the awarding body.  Finally,  
          this bill requires CSLB to include such information related to  
          individual licensed contractors on CSLB's website.

          Supporters contend that this new reporting requirement will make  
          prevailing-wage enforcement enormously more effective.  In  
          response to opposition objections that general contractors may  
          not know the identity of lower-tier subcontractors, supporters  
          state that the reporting provision applies only to awarding  
          bodies, not to general or prime contractors, and even awarding  
          bodies would be required to report only that information  
          available to them.  

          Supporters also argues that Public Contract Code section 1404(a)  
          has long required contractors bidding public works projects to  
          list in their bids all subcontractors that will perform work  
          worth more than one-half of one percent of the prime  
          contractor's bid.  SB 569 merely makes this information readily  
          available to the public, supporters state, which will promote  
          California's e-government goals of transparency and public  








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          access, by requiring the CSLB to electronically post this  
          valuable information on an easily accessible statewide web site.

           Recovery For Violations of Wage Laws Separate From Labor  
          Commissioner.   Current law provides that a contractor and  
          subcontractor are jointly and severally liable for all amounts  
          due pursuant to a final order or a judgment on that final order  
          and requires the Labor Commissioner to first exhaust all efforts  
          to collect the amount due from the subcontractor before pursuing  
          the claim against the contractor.

          In a recent case before the California Fourth District Court of  
          Appeal, the court interpreted the statute to mean that a  
          subcontractor's employee on a public works project cannot sue  
          the prime or general contractor on theories of statutory or  
          contractual liability for the nonpayment of prevailing wages by  
          the subcontractor, the employee's direct employer.  (Violante v.  
          Communities Southwest Development & Construction Co., 138 Cal.  
          App. 4th 972 (2006).)  The court noted that it is the Labor  
          Commissioner that determines whether there has been any  
          violation of the prevailing wage law and then issues wage and  
          penalty assessment.  As discussed above, current law assesses  
          joint and several liability against the contractor and  
          subcontractor for those assessments.  However, the court held  
          that "it is the Labor Commissioner, not an employee, who pursues  
          such claims."  (Id. at 979.)

          Of course, the Labor Commissioner has limited resources to  
          pursue every prevailing wage violation.  If employees have no  
          recourse except if the Labor Commissioner chooses to pursue the  
          employer, many violations of the law may go unremedied.  In  
          order not to make the rights of employees solely dependent upon  
          the discretion and resources of the Labor Commissioner, this  
          bill specifies that the contractor and subcontractor are jointly  
          and severally liable for all amounts due pursuant to a final  
          order or a judgment in any action to enforce the laws relating  
          to public works, "regardless of the party bringing the action in  
          which the judgment is rendered."  The bill states that it is the  
          intent of the Legislature to clarify existing law and to nullify  
          the Violante opinion.

          Nevertheless, the bill specifies that a contractor shall not be  
          liable for penalties incurred as a result of a subcontractor's  
          failure to pay prevailing wages, except as provided for under  
          Labor Code Section 1775(b), which provides that prime  








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          contractors are not liable for monetary penalties unless they  
          had knowledge of the failure of the subcontractor to pay  
          prevailing wages or failed to comply with certain monitoring  
          requirements.

           Statute of Limitations in Actions By Joint Labor-Management  
          Committees.   Existing law provides that federally recognized  
          joint labor-management committees may bring an action against an  
          employer who fails to pay prevailing wages as required by state  
          law, not later than 180 days after the filing of a valid notice  
          of completion or acceptance of the public work, whichever occurs  
          later.

          This bill extends the statute of limitations to not later than  
          four years after the violation occurs.  However, the bill  
          provides that a contractor is not liable for the violations of a  
          subcontractor in an action filed more than 180 days after the  
          filing of a valid notice of completion, as specified, or not  
          later than 180 days after acceptance of the public work,  
          whichever occurs later.

          As to these actions by joint labor-management committees, the  
          bill also requires a court to enjoin violations, award unpaid  
          wages for distribution to employees, and award the joint  
          labor-management committee reasonable attorney's fees, costs,  
          and expenses incurred in maintaining the action.

          Existing law allows the joint labor-management committee to  
          bring an action against an employer that "fails to pay the  
          prevailing wage to its employees."  This bill would provide that  
          the committee may bring an action "against a contractor or  
          subcontractor" who fails to comply with any of the requirements  
          of the entire chapter of the Labor Code dealing with public  
          works.

           Improved Access to Certified Payroll Records.   Current law  
          requires contractor and subcontractors on public works projects  
          to keep accurate payroll records showing the name, address,  
          social security number, work classification, hours worked and  
          wages paid to employees.  The payroll records are required to be  
          certified as true and correct by the contractor or  
          subcontractor.  Certified payroll records are to be made  
          available for inspection upon request of the employee, the  
          awarding body, the Division of Labor Standards Enforcement, or  
          the Division of Apprenticeship Standards.  In addition, under  








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          current law a certified copy of payroll records shall be made  
          available for inspection by a member of the public.  However, a  
          request by the public must be made through either the awarding  
          body, the Division of Labor Standards Enforcement, or the  
          Division of Apprenticeship Standards.

          This bill would authorize a member of the public to request  
          copies of certified payroll records directly from the contractor  
          or subcontractor if the requesting party reimburses the  
          contractor or subcontractor's copying costs.  The costs of  
          copying records would apparently not be reimbursed if the  
          request is made to one of the governmental entities that holds  
          the records.  The bill specifies that a contractor or  
          subcontractor would not be required to provide members of the  
          general public access to the records maintained at the principal  
          office.

          This bill also provides that copies of records provided to joint  
          labor-management committees shall be marked only to obliterate  
          social security numbers, but not names.  Current law provides  
          that copies of records made available to the public shall be  
          marked or obliterated to prevent disclosure of an individual's  
          name, address and social security number.  Existing law also  
          provides that copies provided to joint labor-management  
          committees shall be marked only to prevent disclosure of an  
          individual's name and social security number.

           ARGUMENTS IN OPPOSITION  :  The Associated Builders and  
          Contractors (ABC) of California is opposed to the bill, arguing  
          that it would "increase employment related lawsuits by  
          establishing an unprecedented database of publicly accessible  
          contractor information and opportunities for private rights of  
          action leveled by joint labor management committees."  

          ABC states, "SB 569 would mandate the creation of a new  
          government database of all contractors and all subcontractors on  
          public works projects in California.  SB 569 orders each  
          awarding body of a public works project to report specified  
          information (name, license number, location, ID number) about  
          the public works project, as well as, the contractor and  
          subcontractor performing the work to the California State  
          License Board.  ABC of California believes SB 569 provisions  
          will lead to an expensive and unnecessary task that would burden  
          private employers and public agencies alike with no real  
          benefit, except for fishing expeditions for plaintiffs and their  








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          attorneys seeking reasons to file lawsuits."

          ABC also argues against other provisions of the bill, contending  
          that "expanding the ability for a joint labor management  
          committee to file private rights of action against not only  
          general contractors but also subcontractors and extending the  
          statue of limitations is very poor public policy.  SB 569  
          proposes to add these committees - with possible outside agendas  
          - to enter into the public works enforcement process as a new  
          type of plaintiff.  ABC members believe that the existing  
          structure of public works enforcement by the Department of  
          Industrial Relations under the Labor Code provides a reasonable  
          structure with clearly set out policy regarding the nature of  
          what constitutes a violation, the penalties for violations and  
          what types of enforcement may occur and what deadlines apply."  

          Finally, ABC argues that the bill "creates an unnecessary  
          administrative burden for contractors by allowing the public to  
          request payroll records directly from contractors.  Existing law  
          allows the awarding body to provide payroll records to members  
          of the public with necessary safeguards.  Since public  
          requestors are often in adversarial positions to the contractors  
          whose certified payrolls they seek, removing the intermediate  
          step of a neutral public body to process those requests  
          increases the potential for conflict and litigation."  

          Other opponents also argue that requiring every awarding body in  
          California to report the name and license number of each  
          contractor performing on public works projects would be  
          impractical because the awarding bodies and general contractor  
          are not aware of every subcontractor who may perform on a  
          project.  These opponents believe this provision would present a  
          tremendous burden to the already under-staffed and under-funded  
          CSLB and would be of little value.

          In addition, opponents argue that current law provides  
          predictable guidelines on when enforcement of public works  
          violations may occur and sets out the ground rules. 

           Prior Related Legislation  .  AB 581 (Klehs) from 2005 contained  
          language similar to many of the provisions of this bill.  That  
          measure was held in the Senate Committee on Appropriations.











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           REGISTERED SUPPORT / OPPOSITION  :

           Support 
           
          California State Pipe Trades Council (sponsor)
          California Labor Federation
          California State Association of Electrical Workers
          State Building and Construction Trades Council
          Western States Council of Sheet Metal Workers
           
            Opposition 
           
          American Fence Contractors' Association, California chapter
          Associated Builders and Contractors of California
          Associated General Contractors of California
          Associated General Contractors of San Diego
          California Chamber of Commerce
          California Fence Contractors' Association
                                                    Civil Justice Association of California
          Department of Consumer Affairs
          Department of Industrial Relations
          Engineering Contractors' Association
          Flasher/Barricade Association
          Marin Builders' Exchange
          Southern California Contractors Association
          Western Electrical Contractors Association, Inc.

           Analysis Prepared by  :   Kevin G. Baker/ JUD. / (916) 319-2334