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.
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<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:
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<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
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<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