BILL ANALYSIS SB 1231 Page 1 Date of Hearing: June 23, 2010 ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT Sandre Swanson, Chair SB 1231 (Corbett) - As Amended: May 17, 2010 SENATE VOTE : 21-13 SUBJECT : Public contracts: slave and sweat free code of conduct. SUMMARY : Makes various changes to existing provisions of the Public Contract Code related to "sweat free" procurement policy and a related code of conduct Specifically, this bill : 1 Renames the "Sweat Free Code of Conduct" as the "Slave and Sweat Free Code of Conduct" and makes conforming changes. 2)Expands the scope of the code of conduct to include abusive forms of labor performed by all persons, not just child labor. 3)Extends the period that a contractor may be removed from the bidder's list for violations of these requirements from 360 days to two years, as specified. 4)Specifies that contractors must only exercise "due diligence" (rather than "ensure") that their contractors comply with the Slave and Sweat Free Code of Conduct. 5)Provides that a contractor shall not be subject to sanctions for violations of which the contractor had no knowledge that were committed solely by a subcontractor. Sanctions shall instead be imposed against the subcontractor that committed the violation. 6)Specifies that for contractors whose manufacturing or assembly locations are located outside the United States, those contractors shall ensure that their subcontractors comply with the appropriate laws of countries where the facilities are located "or international laws or treaties binding upon those countries." 7)Specifies that the Department of Industrial Relations (DIR) shall establish a contractor responsibility program by January 1, 2012, as specified. SB 1231 Page 2 8)Authorizes the appropriate procurement agency and DIR to use the United States Department of Labor's "List of Goods Produced by Child Labor or Forced Labor" in identifying procurement categories appropriate for phased implementation. 9)Requires DIR and the Department of General Services (DGS) to post procedures and contact information for filing complaints on their respective web sites. EXISTING LAW : 1 Provides DGS with the governing authority related to state procurement activities, including acquisition of materials, supplies and services. 2)Requires every contract entered into by a state agency for the procurement of equipment, materials, supplies, apparel, garments and accessories and the laundering thereof, excluding public works contracts, to require a contractor to certify that no such items provided under the contract are produced by sweatshop labor, forced labor, convict labor, indentured labor under penal sanction, abusive forms of child labor, or exploitation of children in child labor. The law provides for misdemeanor liability in the case of a knowing false certification. 3)Provides that if a contractor knew or should have known the specified products furnished to the state were laundered or produced by the specified types of prohibited labor, the contractor may be removed from the bidder's list for 360 days. 4)Requires contractors to "ensure" that their subcontractors comply with the Sweat Free Code of Conduct, under penalty of perjury. 5)Requires the DIR to establish a contractor responsibility program, including a Sweat Free Code of Conduct, as specified. 6)Requires the appropriate procurement agency, in consultation SB 1231 Page 3 with DIR, to employ a phased and targeted approach to implement the Sweat Free Code of Conduct, as specified. FISCAL EFFECT : Unknown COMMENTS : This bill proposes to make several changes related to state procurement policy regarding materials produced by abusive forms of labor. Background on the "Sweat Free Code of Conduct" On October 8, 2003, Governor Davis signed Senate Bill 578 (Alarc?n), Chapter # 711, Statutes of 2003. SB 578 represented a landmark piece of legislation designed to establish a statewide "sweat free" procurement policy to ensure that specified goods purchased by the state are produced in workplaces free of sweatshop conditions. In recent years, other local entities (including cities, counties, school districts, colleges and universities) across the state and the nation have enacted their own policies and/or ordinances designed to prevent the procurement of materials produced by sweatshop labor. Many of these efforts couple "sweat free" codes of conduct with enforcement facilitated through the use of an independent outside monitor. California Procurement Policy Prior to SB 578 Prior to the enactment of SB 578, there were several bills enacted addressing the state's procurement of goods and materials by various forms of labor. AB 2457 (Figueroa), Chapter # 1149, Statutes of 1996, required state agencies to provide in every contract for procurement that the contractor certify that no foreign-made equipment, materials or supplies provided under the contract are produced by forced labor, convict labor, or indentured labor under penal sanction. That bill essentially provided for state enforcement of the SB 1231 Page 4 Smoot-Hawley Tariff Act of 1930 - the federal law that prohibits the importation of any goods produced by forced labor. AB 2457 also was designed to strengthen deficiencies in enforcement under federal law by imposing additional state law requirements. SB 1888 (Hayden), Chapter # 891, Statutes of 2000, expanded the provisions of the law by prohibiting the procurement by state agencies of goods that have been made by forced or indentured child labor, abusive forms of child labor, or exploitation of children in sweatshop labor. Under SB 1888, "abusive forms of child labor" was defined to mean any of the following: All forms of slavery or practices similar to slavery, such as the sale and trafficking of children, debt bondage, and serfdom and forced or compulsory labor, including forced or compulsory recruitment of children for use in armed conflict. The use, procuring, or offering of a child for prostitution, for the production of pornography, or for pornographic performances. The use, procuring, or offering of a child for illicit activities, in particular for the production and trafficking of illicit drugs. All work or service exacted from or performed by any person under the age of 18 either under the menace of any penalty for its nonperformance and for which the worker does not offer oneself voluntarily, or under a contract, the enforcement of which can be accomplished by process or penalties. All work or service exacted from or performed by a child in violations of all applicable laws of the country of manufacture governing the minimum age of employment, compulsory education, and occupational health and safety. SB 1888 defined "exploitation of children in sweatshop labor" as all work or service exacted from or performed by any person under the age of 18 years in violation of more than one law of the country of manufacture governing wage and benefits, occupational health and safety, nondiscrimination, and freedom of association. SB 1888 also increased the enforcement ability of contracting state agencies. SB 1231 Page 5 Specific Provisions of SB 578 California's procurement law prior to the enactment of SB 578 focused primarily on foreign-made goods produced under indentured/convict labor and other exploitative forms of child labor. SB 578 broadened the existing prohibition to include domestic-made goods and applied procurement restrictions to a broader classification of "sweatshop labor." Among other things, SB 578 made the following major changes to existing law: Expanded existing law to include contracts involving the procurement or laundering of apparel, garments and corresponding accessories (including uniforms), in addition to the procurement of equipment, materials or supplies. Expanded existing law to cover contracts involving domestic-made or laundered goods. Required DIR to establish a contractor responsibility program, including a "Sweat Free Code of Conduct," consisting of 13 specified terms and conditions of employment, to be signed by all bidders on state contracts and subcontracts. Required state contractors to certify that no covered items have been laundered or produced in whole or in part by or with the benefit of sweatshop labor. Defined "sweatshop labor" as all work or service exacted from or performed by any person under the age of 18 years in violation of more than one law of the country of manufacture governing wage and benefits, occupational health and safety, nondiscrimination, and freedom of association. Prohibited contracting between state agencies and any contractor that does not meet the requirements of the "Sweat Free Code of Conduct." Required contractors to ensure, under penalty of perjury, that their subcontractors comply in writing with the "Sweat Free Code of Conduct." Required the state to post proposed contracts on the Internet and required state agencies to establish a SB 1231 Page 6 mechanism for soliciting and reviewing any information indicating violations of the "Sweat Free Code of Conduct." Required the appropriate procurement agency, in consultation with DIR, to employ a phased and targeted approach to implementing the "Sweat Free Code of Conduct." Authorized procurement policies involving apparel, garments and corresponding accessories to have a phase-in period of up to one year for purposes of feasibility and providing sufficient notice to contractors and the general public. Required the appropriate procurement agency, in consultation with DIR, to target other procurement categories based on the magnitude of verified sweatshop conditions and the feasibility of implementation, and authorized them to set phase-in goals and timetables of up to three years in order to achieve compliance with the "Sweat Free Code of Conduct." Required DIR to explore feasible and cost-effective monitoring measures, as specified, to ensure compliance with the law. Authorized DIR to access information from nonprofit organizations to determine whether contractors or subcontractors "are compensating their employees at a level that enables those employees to live above the applicable poverty level." Established a misdemeanor penalty for any person who certifies as true any material matter pursuant to the provisions of the law that he or she knows is false. Local Sweat Free Policies in California In addition to SB 578, several governmental or other entities throughout the nation have established their own sweat free procurement policies, some of which include enforcement via the use of an independent outside monitor. Background on Human Trafficking According to the Senate Committee on Governmental Organization's analysis of this bill: "Human trafficking is the modern-day practice of slavery. It's one of the fastest growing criminal industries in the SB 1231 Page 7 world, consisting of the subjugation, recruitment, harboring, and/or transportation of people for the purpose of forced or coerced labor or commercial sexual exploitation. Every year traffickers generate billions of dollars by exploiting those seeking to cross international borders in search of a better life as well as those vulnerable within the United States, including within the State of California. Since passage of the Trafficking Victims Protection Act in 2000 and the United Nations Palermo Protocol, international awareness of human trafficking has increased and new human trafficking laws have been introduced in over half of the countries around the world. The International Labor Organization estimates that over 12 million people worldwide are working in some form of forced labor on bondage and that more than 200 million children are at work, many in hazardous forms of labor. Hilda Solis, the U.S. Secretary of Labor, recently stated the 'most vulnerable persons - including women, indigenous groups, and migrants - are the most likely to fall into these exploitive situations and the current global economic crisis has only exacerbated their vulnerability.' In 2005, Congress passed the Trafficking Victims Protection Reauthorization Act, directing the Secretary of Labor and the Department of Labor's Bureau of International Labor Affairs (ILAB) to compile 'a list of goods that ILAB has reason to believe were produced using forced labor or child labor.' One of the principal purposes of the List is to inform the public of the significant incidence of child labor and forced labor in the production of certain goods. It is ILAB's intent that the List (published in 2009) will serve as a useful tool for consumers, firms, governments, and others who do not want to support such practices through their purchases with the end goal being the abolition of these practices. The List contains122 goods produced with forced labor, child labor, or both, in 58 countries. When grouped by sector, agricultural crops comprise the largest category. There are 60 agricultural goods on the List, 38 manufactured goods, and 23 mined or quarried goods. Production of pornography was a separate category." SB 1231 Page 8 On June 14, 2010, the United States Department of State issued its tenth annual "Trafficking in Persons Report." That report stated the following: "With the majority of modern slaves in agriculture and mining around the world - and forced labor prevalent in cotton, chocolate, steel, rubber, tin, tungsten, coltan, sugar, and seafood - it is impossible to get dressed, drive to work, talk on the phone, or eat a meal without touching products tainted by forced labor. Even reputable companies can profit from abuse when they do not protect their supply chain - whether at the level of raw materials, parts, or final products - from modern slavery? ?There is no way to effectively monitor a supply chain without tracing it all the way down to raw materials. Such research will lead to an understanding of supply and demand factors used to encourage greater protections of the workers whose labor contributes to downstream profits." Recent Oversight In December of 2009, the Senate Judiciary Committee and the Senate Committee on Labor and Industrial Relations held a joint informational hearing on the subject of human trafficking and supply chains. According to the author's office, this legislation is a product of that hearing and subsequent discussions. ARGUMENTS IN SUPPORT : Supporters argue that, in a global economy, we have seen a race to the bottom as free trade policies have allowed corporations to jump from country to country in search of the cheapest labor and the least regulations. As a result, products are produced throughout the globe using forced labor, child labor, indentured servitude and other abusive conditions. The current global economic crisis has only exacerbated the problem by worsening the degree of poverty that is often a precursor to slavery and trafficking. Supports contend that while the State of California cannot SB 1231 Page 9 always eradicate such labor conditions, it should not legitimate them by doing business with those who engage in immoral practices. They argue that as the eighth largest economy, and one of the largest purchasers of goods in the world, California bears a moral responsibility to be a leader in socially responsible procurement and purchasing practices that insist on humane and lawful labor standards. This bill would help further ensure that human rights violations are not subsidized with taxpayer dollars. ARGUMENTS IN OPPOSITION : Opponents argue that this bill will raise the cost for businesses through increased litigation, either against businesses or because businesses will believe they were inappropriately targeted, and delay project and service delivery. This in turn will raise the cost of state procurement at a time when California is facing a cash and budget crisis. To the extent that these projects are delayed by protests and litigation, this bill would slow the state's economic recovery at a time when unemployment continues to hover at high levels. Opponents also state that, according to their discussions with DIR, the current law has yet to be enforced. Therefore, this bill would expand a section of law that has yet to be used, even though there is no estimation of how effective the current law is and whether it should be expanded. Opponents also contend that the bill inappropriately allows state agencies to contract with non-profit organizations and non-governmental organizations. They express serious concerns about this type of third-party enforcement of state law on private businesses. Opponents conclude that, while the business community opposes slavery and the abusive treatment of workers, this bill seeks to use a one-size-fits-all approach on businesses of varying sizes and industries. They contend that the bill will ultimately increase costs to the state over a very difficult issue that is best handled on federal and international levels. RELATED LEGISLATION : SB 657 (Steinberg) would, among other things, beginning January 1, 2011, require specified retailers and manufacturers doing business in the state to develop, maintain, and implement policies related to their compliance with federal and state SB 1231 Page 10 trafficking prohibitions related to procurement and their supply chain. SB 657 is currently pending in the Assembly Judiciary Committee. REGISTERED SUPPORT / OPPOSITION : Support Alliance to Stop Slavery and End Trafficking California Commission on the Status of Women California Conference Board of the Amalgamated Transit Union California Conference of Machinists California Employment Lawyers Association California Labor Federation, AFL-CIO California Teamsters Public Affairs Council Coalition to Abolish Slavery and Trafficking Engineers and Scientists of California, IFPTE Local 20 International Longshore and Warehouse Union Jockeys' Guild Professional and Technical Engineers, IFPTE Local 21 United Food and Commercial Workers, Western States Council UNITE-HERE! Utility Workers Union of America, Local 132 Opposition American Council of Engineering Companies - California Associated Builder and Contractors of California California Business Properties Association California Chamber of Commerce California Chapter of the American Fence Association California Fence Contractors Association California Independent Grocers Association California Manufacturers and Technology Association California Retailers Association Engineering Contractors Association Flasher Barricade Association Marin Builders Association TechAmerica Western Electrical Contractors Association Analysis Prepared by : Ben Ebbink / L. & E. / (916) 319-2091