BILL ANALYSIS SB 569 Page 1 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 SB 569 Page 2 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 SB 569 Page 3 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 SB 569 Page 4 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. SB 569 Page 5 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 SB 569 Page 6 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 SB 569 Page 7 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 SB 569 Page 8 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 SB 569 Page 9 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. SB 569 Page 10 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