BILL ANALYSIS                                                                                                                                                                                                    Ó




                                                                  AB 1789
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          Date of Hearing:   April 18, 2012

                     ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT
                                Sandre Swanson, Chair
                   AB 1789 (Morrell) - As Amended:  March 29, 2012
           
          SUBJECT  :   Industrial Welfare Commission wage orders: review.

           SUMMARY  :   Requires the Industrial Welfare Commission (IWC) to 
          review each wage order, as specified, and prohibits certain 
          private rights of action based on violations of the IWC wage 
          orders until such a review has been completed.  Specifically, 
           this bill  :  

          1)Requires the IWC to review and, if necessary, revise every 
            wage order in effect as of January 1, 2013, to ensure that 
            each wage order is consistent with current work conditions in 
            the industry covered by the wage order.

          2)Requires the IWC, after such a review, to indicate on its web 
            site that the wage order has been reviewed and whether the 
            wage order needs to be revised.

          3)Prohibits any action from being brought under the Labor Code 
            Private Attorneys General Act (PAGA) for a violation of a wage 
            order until it has been reviewed, and, if the wage order needs 
            to be revised, until the effective date of any revision.

           FISCAL EFFECT  :   Unknown

           COMMENTS  :  This bill is intended to address what the sponsor 
          considers to be a proliferation of lawsuits in recent years 
          involving alleged violations of provisions of the IWC wage 
          orders.  

           Brief Background on the Industrial Welfare Commission
           
          The Industrial Welfare Commission (IWC) was originally 
          established in 1913.  Existing law requires the IWC to 
          "ascertain the wages paid to all employees in this state, to 
          ascertain the hours and conditions of labor and employment in 
          the various occupations, trades, and industries in which 
          employees are employed in this state, and to investigate the 











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          health, safety, and welfare of those employees<1>."  Existing 
          law also requires the IWC to conduct a full review of the 
          adequacy of the minimum wage at least once every two years<2>.

          The IWC fulfills this duty generally through the issuance of 
          "wage orders."  There are currently 17 separate wage orders 
          which regulate various industries and occupations in California.

          The IWC is composed of five members appointed by the Governor.  
          Two members represent organized labor, two members represent 
          employers, and one member represents the general public.



           The IWC and the Fight Over the Eight-Hour Day
           
          When it was established in 1913, the IWC only had jurisdiction 
          over working hours of women and minors.  Exercising its 
          authority, the IWC established daily overtime after eight hours 
          for those groups.  In 1974, the discriminatory impact of this 
          approach was struck down in federal court.  The IWC's efforts to 
          adopt new wage orders led to a protracted legal battle.  In 
          1980, the California Supreme Court upheld the adoption of final 
          wage orders incorporating the eight-hour day for male and female 
          employees.  

          Those wage orders remained in effect until January 1, 1998, when 
          the IWC amended five of them to eliminate daily overtime and 
          provide that: "No overtime pay shall be required for hours 
          worked in excess of  any  daily number"  (Emphasis added).  The 
          five wage orders that were amended were Wage Order 1 
          (manufacturing industry), Wage Order 4 (professional, technical, 
          clerical, and mechanical occupations), Wage Order 5 (public 
          housekeeping industry), Wage Order 7 (mercantile industry), and 
          Wage Order 9 (transportation industry).

          That action resulted in an unsuccessful legal challenge, 
          legislation including SB 680 (1997) which was passed but vetoed 
          by Governor Wilson, and ultimately AB 60, which was successfully 
          passed and signed by Governor Davis effective January 1, 2000.  
          AB 60, among other things, codified daily overtime after eight 
          hours as the general rule in California.



          ---------------------------
          <1> Labor Code Section 1173.
          <2> Id.








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           The IWC Defunded  

          As discussed above, the Labor Code requires the IWC to review 
          the adequacy of the minimum wage at least once every two years.  
          Last decade, many interested stakeholders expressed concern that 
          the IWC had not complied with this statutory mandate.  The 
          Legislature defunded the IWC effective July 1, 2004.

          Subsequently, several bills were introduced in the Legislature 
          to increase the minimum wage and index it in future years to 
          inflation.  In 2006, Governor Schwarzenegger expressed support 
          for raising the minimum wage, but expressed opposition to any 
          proposal that would index the minimum wage for inflation.

          In 2006, Governor Schwarzenegger revived the IWC with 
          alternative funding.  Many observers viewed this as an attempt 
          by the Governor to effect an increase in the minimum wage 
          administratively on terms that he could control - namely without 
          indexing.

          However, subsequent to this, Governor Schwarzenegger signed AB 
          1835 (Lieber) of 2006, which increased the minimum wage to $7.50 
          per hour effective January 1, 2007, and to $8.00 per hour, 
          effective January 1, 2008.  AB 1835 did not index the minimum 
          wage for inflation.

          Despite the fact that the IWC has been defunded, the wage orders 
          remain in effect.  The Department of Industrial Relations (DIR) 
          continues to provide updates to certain requirements of the wage 
          orders, such as hourly pay requirements for exempt computer 
          software employees<3> and physicians<4>, which are indexed on an 
          annual basis.
          Governor Brown has appointed one member to the IWC, which 
          currently has four vacancies and continues to be defunded.

           The Labor Code Private Attorneys General Act of 2004 (PAGA)  

          The Labor Code Private Attorneys General Act (PAGA) was enacted 
          pursuant to SB 796 (Dunn), Chapter # 906, Statutes of 2003, and 
          went into effect on January 1, 2004.  

          The Legislative findings accompanying the enactment of SB 796 
          stated the following:


          ---------------------------
          <3> Labor Code Section 515.5(a)(4).
          <4> Labor Code Section 515.6(a).








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               "Adequate financing of essential labor law enforcement 
               functions is necessary to achieve maximum compliance with 
               state labor laws in the underground economy and to ensure 
               an effective disincentive for employers to engage in 
               unlawful and anticompetitive business practices.

               Although innovative labor law education programs and 
               self-policing efforts by industry watchdog groups may have 
               some success in educating some employers about their 
               obligations under state labor laws, in other cases the only 
               meaningful deterrent to unlawful conduct is the vigorous 
               assessment and collection of civil penalties as provided in 
               the Labor Code.

               Staffing levels for state labor law enforcement agencies 
               have, in general, declined over the last decade and are 
               likely to fail to keep up with the growth of the labor 
               market in the future.

               It is therefore in the public interest to provide that 
               civil penalties for violations of the Labor Code may also 
               be assessed and collected by aggrieved employees acting as 
               private attorneys general, while also ensuring that state 
               labor law enforcement agencies' enforcement actions have 
               primacy over any private enforcement efforts undertaken 
               pursuant to this act."

          The co-sponsors of SB 796, the California Labor Federation, 
          AFL-CIO and the California Rural Legal Assistance Foundation, 
          argued that the bill would address inadequacies in labor law 
          enforcement in two major ways.  First, the bill assigned civil 
          fine amounts to the large number of Labor Code provisions, which 
          previously carried prohibitions or criminal fines, but not civil 
          penalties.  Second, it authorized the filing of civil actions to 
          recover existing and new civil penalties by aggrieved workers 
          acting as private attorneys general.

          The PAGA was significantly amended by SB 1809 (Dunn), Chapter # 
          221, Statutes of 2004.

          SB 1809 significantly amended the provisions of the PAGA by 
          enacting specified procedural and administrative requirements 
          that must be met prior to bringing a private action to recover 
          civil penalties.  Moreover, SB 1809 provided that no action 









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          shall be brought for a posting, notice, agency reporting, or 
          filing requirement, except as specified.

          The provisions of SB 1809 also expanded judicial review of PAGA 
          claims by requiring courts to review and approve any penalties 
          sought as part of a proposed settlement agreement, and those 
          portions of settlements concerning violations of health and 
          safety laws.  In addition, courts were authorized to award a 
          lesser amount if to do so otherwise would result in an award 
          that is unjust, arbitrary and oppressive, or confiscatory.

          Finally, SB 1809 appropriated $150,000 from the General Fund to 
          the Labor and Workforce Development Agency (LWDA) for the 
          purposes of implementing its provisions, and changed the prior 
          penalty formula to provide that 75 percent of most civil 
          penalties recovered pursuant to PAGA shall go to the LWDA for 
          labor law enforcement and education.

           PAGA and IWC Wage Order Violations
           
          As discussed above, the IWC wage orders contain a number of 
          provisions applicable to various industries and occupations.  
          Some of the requirements of the wage orders have been 
          specifically codified (such as the eight-hour day for overtime 
          and meal periods).  Other provisions of the Labor Code have not 
          specifically been codified in the Labor Code.

          However, Labor Code Section 1198 states the following:

               "The maximum hours of work and the standard conditions of 
               labor fixed by the ÝIWC] shall be the maximum hours of work 
               and the standard conditions of labor for employees.  The 
               employment of any employee for longer hours than those 
               fixed by the order or under conditions of labor prohibited 
               by the order is unlawful."  (Emphasis provided).

          Therefore, in recent years, the question has arisen as to 
          whether a violation of certain provisions of the IWC wage orders 
          constitutes a violation of the Labor Code, through the operation 
          of the language of Labor Code Section 1198 cited above.  This in 
          turn has given rise to questions about whether, if such 
          violations do constitute a violation of the Labor Code, an 
          employee may pursue a private right of action for civil 
          penalties under PAGA for such violations.










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          Recently, several courts have answered this question in the 
          affirmative with respect to provisions of the IWC wage orders 
          that require employees to be provided with "suitable seats" 
          under certain circumstances.

          The first case involved a class-action lawsuit filed against the 
          discount retail chain 99 Cents Only Stores.  Bright v. 99 Cents 
          Only Stores, 189 Cal. App. 4th 1472 (2010).  In that case, the 
          plaintiff argued that by failing to provide "suitable seating" 
          to its cashiers, her employer violated provisions of Section 
          14<5> of IWC Wage Order 7-2001 (which regulates the mercantile 
          industry).  Among other things, the plaintiff sought civil 
          penalties under PAGA for the "suitable seating" violations.

          The lower trial court dismissed the plaintiff's PAGA claim on 
          the grounds that IWC Wage Order 7-2001 restricts civil penalties 
          to cases in which the employee was underpaid.  However, on 
          appeal the California Court of Appeal for the Second Appellate 
          District reversed and reinstated the employees' claims.  The 
          court held that because Labor Code Section 1198 incorporated the 
          labor conditions set by the IWC (as discussed above), a 
          violation of the "suitable seating" requirement is a violation 
          of the California Labor Code. Therefore, the court concluded 
          that employees can recover monetary damages under PAGA when 
          employers do not comply with IWC Wage Order requirements, 
          including the "suitable seating" requirement.

          A similar holding was reached by the same court in a subsequent 
          case involving "suitable seating."  Home Depot U.S.A., Inc. v. 
          Superior Court (Harris), 2010 WL 5175194 (2010).

          Since that time, employers have reported that they have seen a 
          "flood" of lawsuits alleging PAGA claims arising from alleged 
          violation of the IWC wage order "suitable seating" requirements. 
           In addition, a provision of the IWC wage orders provides that 
          the "temperature maintained in each work area shall provide 
          ---------------------------
          <5> Section 14 of IWC Wage Order 7-2001 states, "All working 
          employees shall be provided with suitable seats when the nature 
          of the work reasonably permits the use of seats?When employees 
          are not engaged in the active duties of their employment and the 
          nature of the work requires standing, an adequate number of 
          suitable seats shall be placed in reasonable proximity to the 
          work area and employees shall be permitted to use such seats 
          when it does not interfere with the performance of their 
          duties."








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          reasonable comfort consistent with industry-wide standards for 
          the nature of the process and the work performed."  Some 
          employers have also expressed fear about potential PAGA lawsuits 
          alleging violations of the temperature provisions of the wage 
          orders.

           ARGUMENTS IN SUPPORT  :

          This bill is sponsored by the California Chamber of Commerce and 
          a coalition of employer groups.  They state the following in 
          support of this bill:

               "The Industrial Welfare Commission was defunded in 2004 and 
               the Commission's Wage Orders have not been substantively 
               reviewed or updated since.  Concerns regarding the 
               ambiguous provisions of the Wage Orders, such as Wage Order 
               7-2001, Section 14 regarding appropriate "seating" was 
               significantly exemplified in 2009 when a court confirmed an 
               employee could file a representative action under PAGA for 
               violation of these sections of the Wage Orders that have 
               not been codified into statute.  Since this ruling, costly 
               "seating" cases against companies have been filed 
               throughout the state.  The merit of such cases are 
               questionable as the basis of such lawsuits are that an 
               employee was not "provided" proper seating while working, 
               even when the employee never requested seating.  These 
               cases are generally accompanied with a costly settlement 
               demand in the multi-million dollar range, with the threat 
               of attorney's fees for the employee only if the employer 
               chooses to fight the lawsuit, rather than resolve it 
               through settlement.

               Such frivolous litigation against California employers 
               needs to end.  For the past ten years, numerous employers 
               have been financially devastated by litigation regarding 
               what it means to "provide" an employee a meal period.  Now, 
               the same employers are being threatened with costly 
               litigation over what it means to "provide" an employee 
               seating.  Given that the IWC is currently defunded, 
               employers are left with no agency or regulatory body to 
               seek information regarding what the intent and meaning was 
               of these ambiguous provisions of the Wage Orders.  

               In order to prevent California employers from enduring 
               another decade of such costly litigation, Ýthis bill] 









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               prevents an employee from pursuing a PAGA claim for these 
               provisions of the Wage Orders that have not been codified 
               into statute, until the IWC is funded and reviews these 
               outdated Wage Orders to make sure such provisions are 
               consistent with the current work environment.  Employees 
               who believe they have been harmed by the lack of available 
               seating may still seek administrative relief from the 
               Division of Labor Standards Enforcement. ÝThis bill] will 
               simply prevent predatory attorneys from exploiting these 
               ambiguous provisions for financial gain and unwarranted 
               litigation."

           ARGUMENTS IN OPPOSITION  :
           
          The California Labor Federation, AFL-CIO, writes the following 
          in opposition to this bill:

               "This proposal is unnecessary. Even without an active IWC, 
               there is nothing to stop any industry from bringing forward 
               a legislative proposal to change wages or working 
               conditions, or workplace regulations. In fact, many 
               industries have successfully changed overtime and meal 
               break policies through the Legislature in recent years.

               It makes no sense to take away a worker's access to 
               justice. While agency enforcement of all labor violations 
               would be ideal, it is simply not realistic given the budget 
               plight we face in California. PAGA was created because of 
               widespread recognition that state resources are woefully 
               inadequate to protect California workers. It allows workers 
               to file a suit for violations of serious provisions of the 
               Labor Code, and gives employers the opportunity to cure 
               less serious violations. 

               Without any meaningful enforcement, employers would have no 
               incentive to follow the law. Basic rights would be ignored 
               and workers would have little recourse. We cannot go back 
               to a time when workers' rights violations could occur with 
               impunity. "

          This bill, upon passage out of Labor Committee, is 
          double-referred to Judiciary Committee.

           REGISTERED SUPPORT / OPPOSITION  :   










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           Support 
           
          Associated Builders and Contractors of California
          California Chamber of Commerce
          California Farm Bureau Federation
          California Framing Contractors Association
          California Grocers Association
          California Hospital Association
          California Independent Grocers Association
          California Manufacturers and Technology Association
          California Restaurant Association

           Opposition 
           
          American Federation of State, County and Municipal Employees
          California Employment Lawyers Association
          California Labor Federation, AFL-CIO
          California Nurses Association
          California Rural Legal Assistance Foundation
          Consumer Attorneys of California

           
          Analysis Prepared by  :    Ben Ebbink / L. & E. / (916) 319-2091