BILL ANALYSIS Ó
Senate Committee on Labor and Industrial Relations
Ted W. Lieu, Chair
Date of Hearing: June 8, 2011 2011-2012 Regular
Session
Consultant: Gideon L. Baum Fiscal:No
Urgency: No
Bill No: AB 197
Author: Monning
Version: As Introduced June 2, 2011
SUBJECT
Recovery of wages: liquidated damages.
KEY ISSUE
Should the Legislature double the liquidated damages that can be
awarded to an individual when his or her employer pays less than
the minimum wage?
PURPOSE
To increase liquidated damage amounts in order to encourage
minimum wage law compliance.
ANALYSIS
Existing law sets a minimum wage for all employees in
California, with limited exceptions, and prohibits employers,
unless specified, from paying less than the state minimum wage.
Existing law establishes the Industrial Wage Commission to,
among other duties, review the adequacy of the minimum wage
every two years.
Existing law permits an individual to seek recovery of the
unpaid balance of the minimum wage, including interest, attorney
fees, and costs of the suit. (Labor Code §1194)
Existing law also requires that if an employee is found to have
been paid less than the minimum wage, that employee must be paid
liquidated damages in an amount that is equal to the wages
unlawfully unpaid, plus interest. Existing Civil Code sets the
interest rate at 10 percent. (Labor Code §1194.2 and Civil Code
§ 3289)
Existing law provides that if an employer demonstrates to the
satisfaction of the court that the failure to pay the minimum
wage was in good faith and that the employer had reasonable
grounds for believing that the act or omission was not a
violation of minimum wage law or regulations, the court may, in
its discretion, refuse to award liquidated damages or award a
lesser amount of liquidated damages to the employee. (Labor
Code §1194.2)
This bill would increase the amount of liquidated damages that
may be awarded to an employee when an employer fails to pay
minimum wage to two times the wages unlawfully unpaid, plus
interest.
COMMENTS
1. Need for this bill?
The sponsor of this measure, the California Rural Legal
Assistance Foundation (CRLAF), believes that there is
substantial evidence of widespread minimum wage violations in
California, particularly in the underground economy. In
particular, they note a recent national study on labor law
violations, as well as a Los Angeles County-specific study on
labor law violations.
In 2008, the Ford Foundation sponsored a survey of 4,387
workers in low-wage industries in the three largest U.S.
cities: Chicago, Los Angeles and New York City. The report of
that survey, titled Broken Laws, Unprotected Workers:
Violations of Employment and Labor Laws in America's Cities,
revealed that 26 percent of workers in the sample were paid
less than the legally required minimum wage the prior work
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week, and 60 percent of these workers were underpaid by more
than $1 per hour. In addition, 76 percent of the respondents
who worked overtime in the previous week were not paid the
legally required overtime rate by their employers.
The study also notes that minimum wage violation rates vary
significantly by industry, and occupation. For example, some
industries, such as apparel and textile manufacturing and
personal and repair services have minimum wage violation rates
that exceed 40 percent, while others, including restaurants,
and retail and grocery stores, have rates of 20 to 25 percent.
However, the study found that undocumented immigrant women
were at the greatest risk of minimum wage violations. The
study estimated that the workers in low-wage industries
Chicago, Los Angeles, and New York City lose more than $56.4
million per week due to labor law violations.
A follow-up study by the UCLA Institute for Research and Labor
and Employment was published earlier this year, and that study
utilized the data from the 2008 survey, but focused
specifically on Los Angeles County. This study, titled Wage
Theft and Workplace Violations in Los Angeles: The Failure of
Employment and Labor Law for Low-Wage Workers focused on a
survey results of 1,815 workers in Los Angeles County.
This study found similar results to the national survey:
almost 30 percent of the workers sampled were paid less than
the minimum wage in the prior work week, and 63.3 percent of
these workers were underpaid by more than $1 per hour.
Assuming a full-year work schedule, Los Angeles County survey
respondents lost an average of $2,070.00 annually out of total
earnings of $16,536.00. The study estimated that workers in
low-wage industries in Los Angeles County lose more than $26.2
million per week as a result of employment and labor law
violations.
Both of the studies make the same public policy
recommendations to address these issues, which included
strengthening government enforcement of existing employment
and labor laws and stiffening the penalties.
2. Current Enforcement Activities in California:
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The Bureau of Field Enforcement (BOFE) within the Division of
Labor Standards Enforcement (DLSE) investigates complaints and
takes enforcement actions to ensure employees are not being
required or permitted to work under unlawful conditions.
Enforcement action taken by BOFE investigators involves the
enforcement of child labor laws; the requirement of employers
to carry workers' compensation insurance coverage; audits of
payroll records, collection of unpaid minimum wages, overtime,
as well as prevailing and other unpaid wages; the issuance of
civil and criminal citations; the confiscation of illegally
manufactured garments; and injunctive relief to preclude
further violations of the law.
In the calendar year 2009 (the most recent year for which data
is available); the BOFE conducted a total of 9,053
inspections, resulting in a total of 4,465 citations. The
largest single source of violations and citations was the
failure to carry workers' compensation insurance with 2,257
citations in 2009.
In 2009, the BOFE issued 113 citations for minimum wage
violations, fewer than the 135 citations issued in 2008. In
2006, the BOFE issued only 32 citations for minimum wage
violations.
3. Proponent Arguments :
As mentioned above, this measure is sponsored by the
California Rural Legal Assistance Foundation (CRLAF), who
argues that it will bring California into the mainstream with
other states that have recently increased damages paid to
workers when their employers cheat them out of the state's
respective minimum wages.
CRLAF notes that DLSE has fewer authorized enforcement
positions in 2011 than it had in 1980, and has a demonstrably
poor record of either citing minimum wage or overtime
violations, or collection civil penalty assessments for these
violations, both of which undercut the deterrent effect of the
Labor Codes civil penalty provisions. They argue that there
needs to be more done to increase the effectiveness of both
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Senate Committee on Labor and Industrial Relations
public and private enforcement of wage violations in
California and follow the lead of ten other states, including
New Mexico, Idaho, Michigan and Maine, that have enacted
statutes that provide for at least the same level of damages
in unpaid wages proposed in this bill.
4. Opponent Arguments :
Opponents of this measure, which includes the California
Chamber of Commerce, the California Association of Health
Facilities, and the California Bankers Association, argue that
the mere availability of liquidated damages, and this bill's
attempt to expand them, are unjustified and oppressive given
that apart from liquidated damages, employers must make the
employee whole and pay a substantial penalty. In addition,
the opponents write that California employers are already
subject to an expansive number of wage and hour laws and
regulations and substantial penalties for each.
5. Prior Legislation :
AB 1881 (Monning) of 2010 was nearly identical to this bill.
It was vetoed by Governor Schwarzenegger.
AB 1835 (Lieber), Statutes of 2006, Chapter 230, sets the
minimum wage at $7.50 per hour as of January 1, 2007 and $8.00
per hour as of January 1, 2008.
SUPPORT
CA Conference Board of Amalgamated Transit Union
CA Conference of Machinists
CA Official Court Reporters Association
California Nurses Association
California Rural Assistance Foundation
California Teamsters Public Affairs Council
Engineers and Scientists of California
International Longshore and Warehouse Union
Professional and Technical Engineers, Local 21
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UNITE HERE
United Food and Commercial Workers-Western States Conference
Utility Workers Union Workers of America, Local 132
OPPOSITION
Associated Builders and Contractors of California
Associated General Contractors of California
California Association for Health Services at Home
California Association of Bed and Breakfast Inns
California Association of Health Facilities
California Chamber of Commerce
California Farm Bureau Federation
California Framing Contractors Association
California Grocers Association
California Hospital Association
California Hotel & Lodging Association
California Retailers Association
Civil Justice Association of California
Western Electrical Contractors Association
Western Growers
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Senate Committee on Labor and Industrial Relations