BILL ANALYSIS Ó
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THIRD READING
Bill No: AB 766
Author: Monning (D), et al.
Amended: 8/24/11 in Senate
Vote: 21
SENATE LABOR & INDUSTRIAL RELATIONS COMM : 6-0, 06/08/11
AYES: Lieu, Wyland, DeSaulnier, Leno, Runner, Yee
NO VOTE RECORDED: Padilla
ASSEMBLY FLOOR : 65-8, 05/19/11 - See last page for vote
SUBJECT : Public works: payroll records
SOURCE : Author
DIGEST : This bill gives enforcement agencies that are a
part of the Joint Enforcement Strike Force on the
Underground Economy (JESF), access to nonredacted copies of
certified payroll records on public works projects in order
to target the underground economy. This bill requires any
copies of records or certified payroll made available for
inspection and furnished upon request to the public by
these agencies to be marked or redacted to prevent
disclosure of an individual's name, address, and social
security number. The bill also provides that an employer
is not liable in a civil action for any reasonable act or
omission taken in good faith in compliance with these
requirements.
Senate Floor Amendments of 8/24/11 specify that an
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employer, who makes employee payroll records public to
specified agencies, shall not be liable for damages in a
civil action for any reasonable act or omission taken in
good faith in compliance with the requirements of this
bill, and double-joint the provisions of this bill with
those of AB 551 (Campos).
ANALYSIS : Existing law requires each contractor and
subcontractor performing work on a public works project to
keep accurate payroll records of their employees. Among
other things, existing law regarding payroll records does
the following:
1.Authorizes various individuals and entities, including
representatives from the Division of Labor Standards
Enforcement and the Division of Apprenticeship Standards
of the Department of Industrial Relations, to inspect
certified copies of such records under certain
conditions.
2.Requires that any copy of such records made available to
the public or a public agency must be marked or
obliterated to prevent disclosure of an individual's
name, address and social security number. The name and
address of the contractor awarded the contract or the
subcontractor performing the contract shall not be marked
or obliterated.
This bill gives enforcement agencies that are a part of
JESF, access to nonredacted copies of certified payroll
records on public works projects in order to target the
underground economy. This bill requires any copies of
records or certified payroll made available for inspection
and furnished upon request to the public by these agencies
to be marked or redacted to prevent disclosure of an
individual's name, address, and social security number.
The bill also provides that an employer is not liable in a
civil action for any reasonable act or omission taken in
good faith in compliance with these requirements.
Background
In October 1993, Executive Order W-66-93 was issued
establishing the JESF to combat the underground economy
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through coordinating enforcement activities among various
entities. The Legislature subsequently added JESF to state
law.
The JESF is a partnership with representatives from the
Employment Development Department (EDD), the Department of
Consumer Affairs, the Department of Industrial Relations,
the Department of Insurance and the Office of Criminal
Justice Planning. Other agencies that are not part of the
administration, but are also participants in the JESF are
the Franchise Tax Board, the Board of Equalization, and the
U.S. Department of Justice.
The focus of JESF has been to target, among other
industries, auto body repair, bars and restaurants,
construction, garment manufacturing, public works, and
janitorial services. JESF is authorized to form joint
enforcement teams. Since the formation of JESF three joint
enforcement efforts have been implemented: the Employment
Enforcement Task Force, the Construction Enforcement
Project, and the Janitorial Enforcement Project.
The Director of EDD is the chairperson of the strike force
and EDD is designated as the lead agency of the JESF. The
program is administered through the EDD's Underground
Economy Operations program. Any employee of the agencies
that participate in JESF are authorized to issue Labor Code
citations and penalty assessment orders to employers found
in violation of the law.
Comments
EDD is charged with investigating businesses that avoid
paying payroll taxes, many of which are part of the
underground economy. EDD defines the "underground economy"
as a term that refers to those individuals and businesses
that deal in cash and/or use other schemes to conceal their
activities and their true tax liability from government
licensing, regulatory, and taxing agencies. The
underground economy allows some employers to gain an unfair
competitive advantage over businesses that do comply with
the law and forces the law abiding businesses to pay higher
taxes and expenses.
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According to EDD, a February 2005 report, California's Tax
Gap, prepared by California's Legislative Analyst's Office,
estimates California's income tax gap to be $6.5 billion.
Reports on the underground economy indicate it imposes
significant burdens on: (1) the State of California, (2)
businesses that comply with the law, and (3) workers who
lose benefits and other protections provided by state law
when the businesses they work for operate in the
underground economy. According to the author, the State
Controller's office estimates that 11 percent of taxes owed
in California go uncollected, and another three percent are
collected only through state enforcement.
Although there are different entities conducting
enforcement efforts, the state does not currently have a
coordinated system of enforcing its tax and labor laws.
Thus, despite the clear nexus between employers that
violate both sets of laws, there is no formal process to
ensure that the enforcement efforts of one department are
reflected in the work of another. This lack of
coordination is worsened by the limited enforcement
resources available in California. For example, the past
several decades, labor law enforcement has been on the
decline. Between 1980 and 2000, California's workforce grew
48 percent, but the Division of Labor Standards Enforcement
staffing levels went down 7.6 percent.
This bill gives enforcement agencies that are a part of
JESF, and other specified agencies, access to unmarked or
unobliterated copies of certified payroll records on public
works projects in order to target the underground economy.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 8/24/11)
California Chapter of the American Fence Association
California Fence Contractors Association
California Labor Federation
Engineering Contractors Association
Flasher Barricade Association
Marin Builders Association
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ARGUMENTS IN SUPPORT : According to the author's office,
California's underground economy is thriving. Because
business in the underground economy is conducted outside
the bounds of state law, businesses operating there are
able to gain an unfair advantage over their law-abiding
competitors by flouting labor laws and ignoring their tax
obligations to state and local governments. The author
argues that violations of labor and tax laws often go hand
in hand. Every time an employer fails to pay a worker
minimum wage, ignores overtime pay requirements, or simply
pays in cash under the table, the state loses revenues from
income and payroll taxes that fund the unemployment
insurance system, paid family leave, disability insurance
and vital state general fund programs.
According to the author, Employment Development Department
analysis of IRS data has found that California's
underground economy is worth between $60 and 140 billion a
year.
As the state faces a multi-billion dollar budget deficit,
increased collection of already-owed taxes should be a top
budget priority. The author argues that, unfortunately, the
state does not currently have a coordinated system of
enforcing its tax and labor laws. Thus, despite the clear
nexus between employers that violate both sets of laws,
there is no formal process to ensure that the enforcement
efforts of one department are reflected in the work of
another.
This bill provides a tool to help state agencies involved
in enforcement of underground economy activity to
coordinate their limited financial resources for increased
enforcement results without having to individually
reconstruct a case for prosecution. The author believes
that the anticipated result will be significantly greater
compliance by business owners doing business in California,
as well as increased monies collected for the California's
General Fund.
ASSEMBLY FLOOR : 65-8, 05/19/11
AYES: Achadjian, Allen, Ammiano, Atkins, Beall, Bill
Berryhill, Block, Blumenfield, Bonilla, Bradford,
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Brownley, Buchanan, Butler, Charles Calderon, Campos,
Carter, Cedillo, Chesbro, Cook, Davis, Dickinson, Eng,
Feuer, Fletcher, Fong, Fuentes, Furutani, Galgiani,
Gatto, Gordon, Halderman, Hall, Harkey, Hayashi, Roger
Hernández, Hill, Huber, Hueso, Huffman, Jones, Knight,
Lara, Bonnie Lowenthal, Mendoza, Miller, Mitchell,
Monning, Morrell, Nestande, Olsen, Pan, Perea, V. Manuel
Pérez, Portantino, Skinner, Smyth, Solorio, Swanson,
Torres, Valadao, Wagner, Wieckowski, Williams, Yamada,
John A. Pérez
NOES: Donnelly, Beth Gaines, Hagman, Jeffries, Logue,
Mansoor, Nielsen, Norby
NO VOTE RECORDED: Alejo, Conway, Garrick, Gorell, Grove,
Ma, Silva
PQ:nl 8/25/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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