BILL ANALYSIS Ó AB 551 Page 1 Date of Hearing: May 11, 2011 ASSEMBLY COMMITTEE ON APPROPRIATIONS Felipe Fuentes, Chair AB 551 (Campos) - As Introduced: February 16, 2011 Policy Committee: Labor and Employment Vote: 5-1 Judiciary 7-2 Urgency: No State Mandated Local Program: No Reimbursable: No SUMMARY This bill increase the penalties for contractors/subcontractors who fail to pay the prevailing wage on public works projects, as specified. Specifically, this bill: 1)Increases the maximum penalty from $50 to $100 per calendar day for each worker paid less than the prevailing wage for the work or craft in which the worker is employed, as specified. 2)Increases the minimum penalty from $10 to $40 per calendar day for each worker paid less than the prevailing wage, unless the failure of the contractor/subcontractor to pay the correct wage was a good faith mistake, as specified. 3)Increases the minimum penalty from $20 to $80 per calendar day for each worker paid less than the prevailing wage, if the contractor/subcontractor has been assessed penalties within the previous three years for failing to meet its prevailing wage obligations on a separate contract, as specified. 4)Increases the minimum penalty from $30 to $120 per calendar day for each worker paid less than the prevailing wage, if the Labor Commissioner (LC) determines the violation was willful. 5)Increases the penalty from $25 to $100 for each calendar day, for each worker, until the contractor /subcontractor complies with the 10-day time period requesting payroll records, as specified. AB 551 Page 2 6)Prohibits, for three years, a contractor/subcontractor from performing a public works project when it has committed two or more separate willful prevailing wage violations within a three- year period. 7)Debars a contractor/subcontractor from working on a public works project when it fails to produce payroll records to the LC in a timely manner, as specified. FISCAL EFFECT 1)Costs to enforce this measure are likely, minor, and absorbable. 2)Potential for increased revenue due to the proposed higher fine structure. Currently, the Division of Labor Enforcement within the Department of Industrial Relations investigates prevailing wage claims. According to the 2009 annual Bureau of Field Enforcement (BFE) report, there were 1,352 cases opened regarding prevailing wage violations. These cases led to $4.5 million in penalties assessed, with a total of $839,123 collected in that year. Likewise, the BFE reports a total of $10.8 million in back wages due to workers on public works projects. Of this amount $5.2 million were collected in that year. COMMENTS 1)Background . According to DIR, California's prevailing wage rate is the basic hourly rate paid on public works projects to a majority of workers engaged in a particular craft, classification or type of work within the locality and in the nearest labor market area (if a majority of such workers are paid at a single rate). If there is no single rate paid to a majority, the single or modal rate being paid to the greater number of workers is prevailing. DIR further notes that the prevailing wage is determined by the Director of DIR in written determinations issued annually on February 22 and August 22. Existing law establishes penalties for contractors/subcontractors who fail to pay the prevailing wage to workers and provide payroll records, upon request. The chart below illustrates current penalties (per calendar day) and the proposed increases in this measure. AB 551 Page 3 ----------------------------------------------------- | | Current | AB | | | Law | 551 | |-----------------------------------+----------+------| |Maximum penalty for paying less | $50 | $100 | |than the prevailing wage | | | |-----------------------------------+----------+------| |Minimum penalty for paying less | $10 | $40 | |than prevailing wage, unless a | | | |good faith mistake | | | |-----------------------------------+----------+------| |Minimum penalty for paying less | $20 | $80 | |than prevailing wage, if assessed | | | |penalties within the previous | | | |three years. | | | |-----------------------------------+----------+------| |Minimum penalty for paying less | $30 | $120 | |than prevailing wage, if LC | | | |determines violation was willful. | | | | | | | |-----------------------------------+----------+------| |Penalty for compiling with payroll | $25 |$100 | |records request | | | ----------------------------------------------------- Statue also provides whenever a contractor/subcontractor has been found by the LC to be in willful violation of public works laws for a second and subsequent time within a three-year period, the entity shall be ineligible for an up to three-year period from bidding on or being awarded a public works contract, or performing work as a subcontractor on a public works contract. This bill proposes to reduce the number of violations from three to two that determines a contractor/subcontractor's eligibility for public works projects, as specified. 2)Rationale . According to the author, "Currently, contractors are not deterred by penalties that exist for violating the state's Prevailing Wage Act. The penalties are too low to act as a real deterrent and have not been raised or amended in years. Some recalcitrant contractors (often those that are in the underground economy) simply make a business decision to pay the fines if they get caught figuring that with fewer and AB 551 Page 4 fewer inspectors at the Labor Commissioner's office the chances of them getting caught violating the Act are very low." This bill, sponsored by the Building and Construction Trades Council, increases penalties for violations of prevailing wage statute, as specified. 3)Opposition . Opponents, private contractors of this measure argue the majority of prevailing wage penalties are due to clerical errors and good faith disputes. They argue the current fine structure is sufficient and "high enough to put small to medium size companies in financial jeopardy. It is not uncommon to see cases where the penalties exceed the alleged wage underpayment." 4)Previous legislation . AB 45 (Padilla) increased the penalty on contractors that willfully violate prevailing wage law and permanently removed such contractors from competition with law-abiding contractors. This measure was vetoed by Governor Schwarzenegger in October 2009 with the following message: "This bill would enact new penalties against contractors found by the Labor Commissioner to be in violation of the public works law with intent to defraud. This bill is not needed because provisions in existing law are already adequate to preclude unscrupulous contractors from bidding on public works jobs. The standard of what constitutes "intent to defraud" to warrant permanent debarment is also not sufficiently defined. Further, recently enacted legislation strengthens existing law by creating an enforcement program to minimize public works violations." Analysis Prepared by : Kimberly Rodriguez / APPR. / (916) 319-2081