BILL ANALYSIS Ó
Senate Committee on Labor and Industrial Relations
Ted W. Lieu, Chair
Date of Hearing: June 27, 2012 2011-2012 Regular
Session
Consultant: Alma Perez Fiscal:No
Urgency: No
Bill No: AB 1855
Author: Torres
As Introduced/Amended: May 25, 2012
SUBJECT
Employment: contractors: sufficient funds
KEY ISSUE
Should the Legislature prohibit a person or entity from entering
into a contract with a warehouse contractor where the person
knows (or should know) that the contract does not have
sufficient funds to allow the contractor to comply with all
applicable labor laws?
PURPOSE
To extend existing provisions regarding liability for
financially-insufficient contracts to the warehouse industry.
ANALYSIS
Existing law provides a framework of labor law enforcement of,
among other things, minimum standards for wages, hours,
conditions of employment, and occupational safety and health by
the Department of Industrial Relations (DIR).
Existing law imposes various requirements on individuals
contracting for labor or services with construction, farm labor,
garment, janitorial, or security guard contractors. Among other
things, with regards to these contracts, existing law (Labor
Code §2810):
1) Prohibits a person or entity from entering into a
contract or agreement for labor or services with these
industry contractors where the person or entity knows or
should know that the contract or agreement does not include
funds sufficient to allow the contractor to comply with
applicable laws governing the labor or service to be
provided.
2) Establishes a rebuttable presumption that there has been
no violation of the law where the contract or agreement is
in writing and meets specified conditions.
3) Authorizes an aggrieved employee to bring an action to
recover the greater of his or her actual damages or $250
per employee per violation for an initial violation and
$1,000 per employee for each subsequent violation, in
addition to recovering costs and reasonable attorney's
fees.
4) Provides that these provisions do not apply to a person
or entity who executes a collective bargaining agreement
covering the workers employed under the contract or
agreement, or to a person entering a contract or agreement
for labor or services to be performed on his or her home
residence, as specified.
This Bill would extend these existing provisions regarding
liability for financially-insufficient contracts to the
warehouse industry.
Specifically, this bill:
1) Extends provisions of current law related to liability
for financially-insufficient contracts to the warehouse
industry (in addition to the industries covered under
existing law).
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Consultant: Alma Perez Page 2
Senate Committee on Labor and Industrial Relations
2) Defines "warehouse" to mean a facility whose primary
operation is the storage or distribution of general
merchandise, refrigerated goods, or other products.
3) Provides that, upon request of the Labor Commissioner,
any person or entity that enters into a contract or
agreement for labor or services shall provide a copy of the
relevant provisions of the contract or other documentation
to the Labor Commissioner, as specified.
COMMENTS
1. Background on Enactment of Labor Code §2810 :
Senate Bill 179 (Alarcon), Chapter 908, Statutes of 2003,
enacted Labor Code §2810, which prohibits a person or entity
from entering into a contract or agreement for labor or
services with a construction, farm labor, garment, janitorial,
or security guard contractor where the person or entity knows
or should know that the contract or agreement does not include
funds sufficient to allow the contractor to comply with
applicable laws governing the labor or service to be provided.
At the time, the author and supporters of the bill argued
that the legislation was necessary to protect workers and
law-abiding employers from employers and contractors that
knowingly enter into contracts and agreements that are
financially inadequate to permit compliance with applicable
laws. The purpose of this bill was to establish state policy
regarding financially insufficient contracts in industries
most associated with the underground economy.
In recent years, some workers and worker advocates have
noticed an increase in the number of employers who are moving
away from a traditional employment model towards a business
model that utilizes "subcontracted" or "contingent" workers.
Much recent attention has focused on one industry in
Hearing Date: June 27, 2012 AB 1855
Consultant: Alma Perez Page 3
Senate Committee on Labor and Industrial Relations
particular: the warehouse and logistics industry, especially
in the Inland Empire region of Southern California.
2. Need for this bill?
State enforcement agencies have started to give these issues a
closer look as well. In October 2011, the Division of Labor
Standards Enforcement (DLSE) issued more than $600,000 in
penalties for alleged wage and hour violations against a
Riverside County warehousing operation. Earlier, DLSE had
issued citations of $499,000 to a temporary employment agency
that provided workers at the same warehouse. In response to
worker complaints, the Division of Occupational Safety and
Health (Cal/OSHA) has begun to target the Inland Empire
warehouse industry with a number of open investigations into
workplace health and safety conditions. Among other things,
the complaints allege exposure to dust, fumes and chemicals,
no hand protection, improperly maintained forklifts, and lack
of heat illness prevention programs. According to the
Director of the Department of Industrial Relations, "In the
warehouse industry, low-wage workers are particularly
vulnerable to unsafe working conditions where work is often
hidden from public view. Hazards include moving vehicles,
precariously stacked goods and unguarded equipment." (DIR
Press release, "Cal/OSHA Issues $256,445 in Citations to
Warehouse Operators," January 18, 2012)
On February 15, 2012, the Assembly Labor and Employment
Committee conducted an informational hearing entitled,
"Confronting the Challenges of a Subcontracted Economy: The
Experience of Warehouse Workers in the Logistics Industry as a
Case Study." The hearing explored the overall issue of whether
an employment model that relies heavily upon a "subcontracted"
workforce results in a situation in which workers' rights are
adequately protected, and whether enforcement agencies are
able to adequately enforce existing law to hold responsible
parties accountable. The hearing also examined whether state
policy adequately addresses the situation or whether
policymakers should consider additional regulatory or
statutory changes.
The author and proponents of this legislation argue that this
Hearing Date: June 27, 2012 AB 1855
Consultant: Alma Perez Page 4
Senate Committee on Labor and Industrial Relations
bill is aimed at establishing accountability in the warehouse
industry. This bill will ensure that warehousing companies
that use subcontractors for its worker needs, do so only with
contractors who act ethically toward the workers they employ
by ensuring that they have sufficient funds to comply with all
applicable labor law requirements.
3. Proponent Arguments :
According to the author, over the last decade the warehousing
and logistics industry has experienced a growing shift in the
employment model it uses to employ its workers, from the
permanent employment model to the temporary, or "contingent",
employment model in which workers are hired through labor
contractors. According to proponents, between 1990 and 2007,
temporary employment in the Inland Empire warehouses grew by
575%. They point out that a recent study noted that a decade
ago, these warehouses had eighty percent direct employees and
twenty percent temps - today, they argue, it is just the
opposite.
The "temporary" workers, they argue, remain with a single
employer for years, but without any guarantee of steady or
ongoing work. According to the author and proponents, recent
state investigations have found widespread violations of basic
wage and hour protections and health and safety standards in
these warehouses. Proponents contend that these workers were
denied breaks, paid less than minimum wage, given fraudulent
pay stubs, and compensated by "group piece-rate" (paid by the
load or shipping container).
Proponents argue that the challenge the state faces is
enforcing basic labor laws in the face of these complex levels
of subcontracting - where a company contracts with a warehouse
operator that contracts with multiple temporary agencies.
According to proponents, the temporary agency is the employer
of record; however, these agencies are really just an
intermediary and not responsible for establishing the
conditions in this industry. They argue that unless the
companies actually setting the terms and conditions within the
warehouses are held accountable, the rights of these workers
will never be protected.
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Consultant: Alma Perez Page 5
Senate Committee on Labor and Industrial Relations
Overall, the author and proponents argue that the state needs
stronger incentives to promote responsible contracting in the
warehouse industry. This bill will provide warehouse workers
the same protections against labor exploitation as are
provided to workers in the construction, farm labor, garment,
janitorial and security guard industries under current law.
4. Opponent Arguments :
The International Warehouse Logistics Association (IWLA)
argues that this legislation is misguided in its purpose and
if enacted, will fail to improve the safety of workers or the
financial stability of companies that employ these workers.
They argue that what it will achieve is enormous and
unnecessary harm to one of the very few industries in
California that effectively addresses structural unemployment
in the semi-skilled population.
According to IWLA, although California's recession has created
double-digit unemployment, the logistics industry has actually
added jobs and continues to provide much-needed paychecks to
Californians throughout this structural unemployment crisis.
They argue that these jobs, whether temporary-to-permanent or
regular full-time jobs, provide career ladders and have been
cited as a proven entry-level profession that offers employees
proven professional-development opportunities (including
office and administrative staff programs) addressing the
bilingual and multicultural diversity of California.
IWLA argues that those who are shown to be guilty of abuses
should be prosecuted to the fullest extent of the law;
however, they contend that this legislation starts with the
supposition that all employers of warehouse workers, no matter
how clean their Cal-OSHA record might be, should be presumed
guilty. Lastly, they argue that unfortunately, this bill
singles out only non-union firms for this hostility and
believe that this calls into question constitutional issues of
equal protection.
5. Prior Legislation :
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Senate Committee on Labor and Industrial Relations
SB 179 (Alarcon) of 2003: Chaptered
SB 179 enacted the provisions which this bill seeks to amend.
SB 179 established that a person or entity may not enter into
a labor contract for construction, farm labor, garment,
janitorial, or security guard services when the person or
entity knows or should know that the contract does not provide
funds sufficient to allow the labor contractor to comply with
all applicable laws or regulations governing the labor or
services to be provided under the contract.
SUPPORT
California Catholic Conference
California Conference Board of the Amalgamated Transit Union
California Conference of Machinists
California Employment Lawyers Association
California Labor Federation
California Rural Legal Assistance Foundation
California Teamsters Public Affairs Council
Engineers and Scientist of California
International Longshore & Warehouse Union
Professional & Technical Engineers, Local 21
State Building and Construction Trades Council
UNITE HERE!
United Food and Commercial Workers Union, Western States Council
Utility Workers Union of America, Local 132
OPPOSITION
International Warehouse Logistics Association
Noble Distribution Systems
SP Express
Hearing Date: June 27, 2012 AB 1855
Consultant: Alma Perez Page 7
Senate Committee on Labor and Industrial Relations