BILL ANALYSIS Ó
AB 2517
Page A
Date of Hearing: April 18, 2012
ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT
Sandre Swanson, Chair
AB 2517 (Eng) - As Amended: April 16, 2012
SUBJECT : Employment: payment of wages: liens.
SUMMARY : Authorizes "wage liens" in the car wash industry
against the real and personal property of an employer for unpaid
wages, and makes changes to existing mechanics lien law, as
specified. Specifically, this bill :
1)Provides that the following provisions related to "wage liens"
apply only to employees and employers in the "car washing and
polishing" industry as that term is defined.
2)Provides that an employee, employee representative, or the
Labor Commissioner (LC) may file a lien for the amount of
unpaid wages, other compensation and related penalties and
damages owed on all of the following:
a) Real or personal property owned by the employer that is
located within the state.
b) Real or personal property that is located within the
state upon which the employee performed work or for which
the employee furnished materials, as specified.
3)Provides that a lien upon real property shall be recorded with
the county recorder where the property is located, as
specified.
4)Provides that a lien upon personal property shall be recorded
with the Secretary of State, as specified.
5)Specifies that the lien attaches to all personal property
owned by the employer or subsequently acquired by the
employer, whether tangible or intangible.
6)Specifies that a lien may be filed at any time before the
expiration of the statute of limitations for the wage claim
the lien would enforce.
7)Provides that an action to enforce a lien may be brought by
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the employee, employee representative, or the LC, who may
recover court costs and reasonable attorney's fees in a
successful action to enforce the lien.
8)Requires an employee, in order to enforce a lien, to
demonstrate that he or she is owed wages or other compensation
and any related penalties damages. This determination may be
made by a court or by the LC in an administrative hearing
(known as a "Berman" hearing).
9)Specifies that if a lien is recorded and an action to recover
wages has already been filed, that action shall also be deemed
an action to enforce the lien upon any property subject to the
recorded lien. If there is a judgment, the court may order
the sale at a public auction, or the transfer to the plaintiff
of title or possession, of any property subject to the lien.
10)Specifies that if judgment is entered in favor of the
employer or if the case is dismissed with prejudice, any
applicable lien shall be extinguished upon expiration of the
appeals period if no appeal is filed. If an appeal is filed,
the lien shall continue in force until all issues have been
decided.
11)Specifies that if the lien is extinguished, upon demand and
15 days' notice by any affected party, the lienholder shall
file a release of the lien in the manner set forth under
current law.
12)Provides that to enforce the lien, an action shall be brought
within one year of the recording of the lien.
13)Provides that the lien established by this bill takes
precedence over all other debts, judgments, decrees, liens or
mortgages perfected on or after January 1, 2013 except a tax
lien.
14)Provides that an employee's lien is effective against the
employer, the estate of the employer, or a subsequent bona
fide purchaser of the project subject to the employee's lien.
15)Makes other related and conforming changes.
16)Makes the following changes to existing law related to
mechanic lien law generally:
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a) Provides that a "laborer" (as that term is defined under
current law) may file a lien before the earlier of (1) one
year after completion of the work of improvement, or (2)
one hundred eighty days after the owner records a notice of
completion or cessation.
b) Provides that lien on behalf of a "laborer" shall be
preferred to any lien, mortgage, deed of trust, or other
encumbrance upon the work of improvement or the site,
regardless of whether it attached prior to or subsequent to
the laborer's lien. However, the lien shall not take
precedent over a pre-existing lien, mortgage, deed of
trust, or other encumbrance that was recorded prior to
commencement of the labor or services if the laborer is
shown to have had actual knowledge of it prior to providing
labor or services.
c) Provides that a "laborer" shall be entitled to court
costs and attorneys' fees incurred as a result of recording
and foreclosing on a lien. Upon award, these amounts shall
be considered part of the lien and shall relate back to the
date of recording of the lien.
FISCAL EFFECT : Unknown
COMMENTS : This bill attempts to address an issue that the
Legislature has struggled with for many years, if not decades -
how to ensure that workers (particularly low-wage workers) have
a meaningful opportunity collect on judgments issued in their
favor for unpaid wages.
Over the years, the Legislature and state enforcement agencies
have enacted a number of tools and approaches intended to assist
workers in collecting on such judgments. However, by their very
nature, such tools and approaches are generally limited to
post-judgment relief (once a final order has been issued and
there is no opportunity to appeal). The unfortunate reality for
many workers is that unscrupulous employers are able to hide
their assets or declare bankruptcy well before any final
judgment is issued - denying the aggrieved worker any ability to
collect on their judgments for unpaid wages. The situation has
been described by many advocates as a worker having a piece of
paper that represents a judgment in their favor that is in fact
not worth the paper upon which it is printed.
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Brief Background on Wage Claims and Collections
Various recent studies have highlighted concerns about alleged
widespread "theft of wages" in the United States and in
California, particularly in the underground economy.
For example, in 2009 the Ford Foundation sponsored a study<1>
that surveyed 4,387 workers in low-wage industries in the three
largest U.S. cities - Chicago, Los Angeles and New York City.
The study revealed that 26 percent of workers in the sample were
paid less than the legally required minimum wage, and 60 percent
of these workers were underpaid by more than $1 per hour. In
addition, 76 percent of the respondents who worked overtime in
the previous week were not paid the legally required overtime
rate by their employers.
Another study<2> focused on a survey of 1,815 workers in Los
Angeles County. The survey found that low-wage workers in Los
Angeles regularly experience violations of basic laws that
mandate a minimum wage and overtime pay and are frequently
forced to work off the clock or during their breaks. Other
violations documented in the survey include lack of required
payroll documentation, being paid late, tip stealing and
employer retaliation.
The survey also revealed that the various forms of nonpayment
and underpayment of wages take a heavy monetary toll on workers
and their families. Respondents who experienced a pay-based
violation in the previous work week lost an average of $39.81
out of average weekly earnings of $318.00 (or 12.5 percent).
Assuming a full-year work schedule, these workers lost an
average of $2,070.00 annually out of total earnings of
$16,536.00<3>.
The survey estimated that, in a given week, 654,914 workers in
Los Angeles County suffer at least one pay-based violation.
---------------------------
<1> "Broken Laws, Unprotected Workers: Violations of Employment
and Labor Laws in America's Cities." Center for Urban Economic
Development, National Employment Law Project, UCLA Institute for
Research on Labor and Employment (2009).
<2> Milkman, Ruth, Ana Luz Gonzalez and Victor Narro. "Wage
Theft and Workplace Violation in Los Angeles: The Failure of
Employment and Labor Law for Low-Wage Workers." UCLA Institute
for Research on Labor and Employment (2010).
<3> Id . at 4.
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Extrapolating from this figure, front-line workers in low-wage
industries lose more than $26.2 million per week as a result of
employment and labor law violations<4>.
The authors of the report underscored the economic impact of
these violations as follows:
"Wage theft not only depresses the already meager earnings
of low-wage workers,
it also adversely impacts their communities and the local
economies of which they
are part. Low-income families spend the bulk of their
earnings on basic necessities
like food, clothing and housing. Their expenditures
circulate through local economies,
supporting businesses and jobs. Wage theft robs local
communities of this spending
and ultimately limits economic growth<5>."
This problem is exacerbated by the fact that many workers, even
if they file a claim and obtain a judgment, are unable to
collect against their employer or former employer - particularly
if the employer is "savvy" enough to move or hide their assets
to avoid collection.
In a 2005 case, former California Supreme Court Justice Moreno
perhaps accurately summarized the situation when he observed,
"Ŭe]mployers faced with large wage judgments often play the
'shell game'-that is, they close down one corporation and start
up another."<6> The new accounts then become unreachable under
the judgment "because of the legal fiction that the predecessor
and successor are separate legal entities."<7>
For many years, the Franchise Tax Board (FTB) was charged with
pursuing wage claims that had been adjudicated against employers
by the Division of Labor Standards Enforcement (DLSE). In 2004,
the Bureau of State Audits audited the FTB collection activities
and found that they resulted in full or partial payments on only
20 percent of wage judgments issued after a Labor Commissioner
hearing. Moreover, the audit found that FTB took more than a
year to process claims on average.
---------------------------
<4> Id . at 53.
<5> Id . at 54.
<6> Reynolds v. Bement, 36 Cal. 4th 1075, 1093-94 (2005)
(Moreno, J., concurring) (internal quotations omitted).
<7> Id.
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Subsequently, the Department of Industrial Relations (DIR)
established its own internal collections unit to pursue
collections of unpaid wage judgments. Worker advocates have
alleged that with limited resources, the DIR collections unit
has not significantly improved the prospects for workers to
collect unpaid wages.
Solution Proposed by This Bill - The "Wage Lien"
Current California law provides a prejudgment "lien" as a tool
for certain classes of employees to recover unpaid wages in
certain limited circumstances. However, the sponsors of this
bill contend that, under current California law, only
construction workers and farmer workers are entitled to
prejudgment liens for unpaid wages. Moreover, the current liens
have unreasonably short time frames: 90 days after the work
stops to file the lien and 90 subsequent days to file an action
to enforce it.
The sponsors contend that liens are a proven and longstanding
remedy. Liens are commonly used by banks loaning money to
businesses to ensure the loans get paid back. They are also
used by lawyers to secure their fees, doctors who treat patients
without upfront payment (e.g., for treatment that is to be paid
from workers' compensation insurance), hospitals, construction
contractors, architects, dry cleaners, hotels, landlords,
storage facilities, tax authorities and many others seeking to
ensure payment.
The sponsors therefore argue that workers should have the same
access to liens. Although wage earners lack the bargaining
power to demand voluntary liens as a condition of accepting a
job, the legal system can and should level the playing field by
giving wage earners the same protection as others who provide
services.
Finally, the sponsors state that wage liens are
well-established. Wage liens were a common remedy in the
nineteenth and early twentieth century, and many states in fact
have numerous wage liens on the books (these liens are typically
too out-of-date to be useful to modern workers). California is
an exception. It has very few wage liens on its books -- only
those for construction workers and agricultural workers.
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Recent Amendments Narrowing the Bill to the Car Wash Industry
As introduced, this bill would have afforded workers in any
industry in California the ability to pursue a "wage lien." As
discussed below, that language generated widespread opposition
from employer groups - for a number of reasons.
The author recently amended the bill to limit these wage lien
provisions to the "car washing and polishing" industry.
California leads the nation in both the number of car washes and
number of employees employed by car washes. There are more than
1600 car washes and more than 22,000 employees respectively.
This industry is one that has been plagued by allegations of
worker exploitation in recent years. In March 2008 the Los
Angeles Times reported the results of an investigation of the
carwash industry finding that many owners pay less than half of
the required minimum wage and that two-thirds of those inspected
by the state since 2003 were out of compliance with one or more
labor laws. Some violations included underpaying workers,
hiring minors, operating without workers' compensation insurance
and denying workers their meal and rest breaks.
As a result of these and earlier reports, the Legislature
responded with attempts to regulate the industry in an attempt
to protect workers. In 1999, SB 1097 (Hayden) (which sought to
regulate the car wash industry) was vetoed by Governor Davis.
In his veto message the Governor said, in part: "I am vetoing
this bill I do not believe that the need to register car washes
with the Labor Commissioner has been demonstrated. I am however
asking the Director of Industrial Relations (DIR) to review the
activities of the car washing industry and make any and all
appropriate recommendation to me by June 30, 2001."
In response to the Governor's veto directive, DIR filed an
internal report about labor law violations in the industry and
possible remedies, considering limited resources and widespread
violations that affect other industries in the state.
Additionally, in early 2003, DIR conducted a coordinated
enforcement sweep of the car washing and polishing industry in
the Los Angeles area finding numerous labor law violations,
collecting back wages and penalties due, totaling over $250,000.
As a result of proven violations in this industry AB 1688
(Goldberg) "The Car Wash Worker Bill" was signed into law and
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took effect on January 1, 2004. AB 1688 contained a sunset date
of January 1, 2007. The final car wash regulations were
promulgated by DIR and finally adopted by The Office of
Administrative Law December 2005.
SB 1468 (Alarcon) of 2006 extended the sunset date relating to
the regulation of the car washing and polishing industry to
January 1, 2010. AB 236 (Swanson) of 2010 extended the sunset
date to January 1, 2014.
As stated above, the recent amendments to this bill limit the
"wage lien" provisions to the car washing and polishing
industry.
Mechanics Lien Law and Changes Proposed By This Bill
This bill also proposes some changes related to California's
general mechanics lien law.
The California Constitution grants laborers and materials
suppliers a mechanics lien on any property improved by their
labor or material. The mechanics lien law in the Civil Code
generally specifies the obligations, rights, and remedies of
those involved in a construction project. Mechanics liens are
not available on public works of improvement. However, the
mechanics lien law in the Civil Code provides claimants on
public works projects with other statutory remedies, including
stop notices and claims against payment bonds.
This bill proposes three changes that would apply to mechanics
liens filed by "laborers" as that term is defined under current
law. Civil Code Section 8024(a) defines a "laborer" as a person
who, acting as an employee, performs labor upon, or bestows
skill or other necessary services on, a work of improvement.
"Laborer" also includes a person or entity to which a portion of
compensation is paid by agreement with the laborer or the
collective bargaining agreement of that laborer. Civil Code
Section 8024(b).
First, current law generally requires a mechanic lien to be
recorded before the earlier of either (1) 90 days after
completion of the work of improvement, or (2) 30 days after the
owner records a notice of completion or cessation. This bill
would provide that a "laborer" may file a lien before the
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earlier of (1) one year after completion of the work of
improvement, or (2) one hundred eighty days after the owner
records a notice of completion or cessation. Supporters contend
that, unlike contractors, "laborers are typically unaware of
their right to file a mechanics lien and are taken advantage of
by subcontractors who purposely string them along until it is
too late to do anything. Day laborers often wait several months
to seek legal help because they hope that the subcontractor that
hired them will eventually pay. The subcontractor makes
promises to pay the back wages, plus more, if the laborer will
just wait one more week, month, etc. The subcontractor claims
that he is about to get a big job and will hire the laborers on
the new job, it they just wait. Ninety days is an extremely
short time period for someone who is unsophisticated about the
legal system and the business world."
Second, this bill provides that a "laborer" shall be entitled to
the court costs and attorney's fees incurred as a result of
recording and foreclosing on the lien. Upon award of these
amounts, they shall be deemed part of the lien and shall relate
back to the date of the recording of the lien. Again, the
supporters of this bill contend that, unlike contractors,
laborers claims are often relatively small, and thus, it is
impossible for them to find legal assistance to enforce the
lien. A contractor can and will hire an attorney to collect on
a significant job. However, they contend that a laborer cannot
afford an attorney when, on average, their claims may amount to
only several hundred dollars at the most.
Finally, this bill provides that the lien of a "laborer,"
preferred to any lien, mortgage, deed of trust, or other
encumbrance upon the work of improvement or the site, regardless
of whether it attached prior to or subsequent to the laborer's
lien. However, the lien shall not take precedent over a
pre-existing lien, mortgage, deed of trust, or other encumbrance
that was recorded prior to commencement of the labor or services
if the laborer is shown to have had actual knowledge of it prior
to providing labor or services. Supporters argue that this
final provision is needed because laborers, unlike contractors,
are not in a position to assess the financial viability of a
construction project or the encumbrances on the property prior
to accepting a job. Moreover, the amount of wages claimed is
typically quite small relative to other encumbrances and claims,
so other creditors will not be completely denied their rights to
payment by giving laborers priority. If, on the other hand,
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banks take priority, there is often nothing left to pay laborers
after the bank recoups hundreds of thousands of dollars pursuant
to its lien. As a result, workers end up with nothing.
Supporters contend that California law already recognizes this
and allows for super-priority for liens for agriculture workers
(Civil Code Section 3061.5(b)) and loggers (Civil Code Section
3065).
COMMITTEE STAFF COMMENT : Mechanics lien law is a complex area
of the law that has been subject to significant legislative
activity in recent years. This area of the law is traditionally
under the jurisdiction of the Assembly Judiciary Committee.
This bill has been double-referred to the Assembly Judiciary
Committee, so a more thorough discussion of the changes related
to mechanics lien law (and any potential ramifications
therefrom) may be more appropriate to discuss before that
committee.
ARGUMENTS IN SUPPORT :
According to the author:
"California has one of the highest rates of wage theft in
the country. For example, 30 percent of low wage workers in
Los Angeles are paid less than minimum wage; nearly 80
percent are not paid proper overtime. A worker filing a
claim for unpaid wages at the Labor Commissioner's office
typically must wait more than a year for a decision.
Likewise, workers filing claims in the state civil court
must typically wait at least a year to get a trial. This
time lag means that unscrupulous employers can dissolve the
old business entity and create new corporate forms under a
different name, often while still operating the same type
of business at the same address. Further, under current
law, if a business files for bankruptcy while a wage claim
is pending, the workers' claim will typically be lost.
Even after winning a judgment, California workers cannot
collect their wages, because the state lacks an effective
mechanism for enforcing wage judgments. California's Bureau
of State Auditors found in 2004 that collections by the
state's primary collections agency (the Franchise Tax
Board), result in payments on only 20 percent of wage
judgments issued after a Labor Commissioner hearing. These
are cases that the workers won, proving he or she was owed
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wages. Nonetheless, 80% of the claims went uncollected.
Uncollected wage judgments hurt the state budget, because
they constitute lost opportunities to collect fines and
penalties that would go into the state's General Fund.
Liens are a proven and longstanding remedy to address wage
theft. For example, California's longstanding mechanics'
lien, which is currently available only to construction
workers and contractors, is a proven, cost-effective, and
widely used remedy for building contractors. Similar liens
are also commonly used by banks loaning money to
businesses, lawyers seeking to secure payment of their
fees, architects, storage facilities, tax authorities and
many others seeking to ensure payment."
Similarly, other supporters argue that the wage lien is a
proven, simple legal tool that costs the state nothing. It
creates no new bureaucracies and no new agencies with
complicated enforcement procedures. Instead, workers simply file
with the County Recorder or Secretary of State and pay a $10 to
$30 filing fee. The worker can foreclose (through a legal
process that provides protections for the accused employer) on a
delinquent employer, just as a bank does on a mortgage, a
creditor on an outstanding debt, a lawyer on unpaid retainer
fees, a hospital on unpaid medical costs, a construction
contractor, an agricultural worker, an architect, a dry cleaner,
a hotel, a landlord, storage facilities, and many more.
Supporters argue that such a streamlined, cost-effective, common
tool to enforce wages is long overdue in California.
ARGUMENTS IN OPPOSITION :
As mentioned above, as originally introduced, this bill
established the "wage lien" as a tool for employees in all
industries and occupations. A large coalition of employer
groups submitted a lengthy opposition letter which, among other
things, stated the following:
"ŬThis bill] would cripple California businesses by
allowing any employee, employee representative, or the LC
to file super priority liens on an employer's real property
or any property where an employee has performed work for an
alleged, yet unproven wage claim. This bill would
essentially destroy commercial and personal real estate as
Ŭthis bill] would allow a wage lien to take precedent over
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almost all other liens or judgments, including mortgages?
?Despite the undeniable complexity of wage and hour law in
this state, Ŭthis bill] would allow any employee, employee
representative, or the LC to file a lien against the
employer's real property simply on the basis that the
employee believes he or she has a valid wage claim against
the employer. At the time of filing the lien, the employee
would have no burden to provide any actual evidence that
the employer violated any wage and hour law?
?ŬThis bill] will also basically destroy commercial
investments or lending in California as well as personal
home loans. Specifically, Ŭthis bill] would give a wage
lien priority over any other lien, except a tax lien. This
means that first mortgages on real property would be
secondary to an alleged wage claim. The direct result of
such a requirement would basically end commercial
investment and real estate in California. It is impossible
to imagine that a financial lender would provide a mortgage
on real property if its interest in that property could be
surpassed at any time by a wage lien. Moreover, given that
Ŭthis bill] allows an employee to file a lien on any real
property where work was performed, this could directly
impact personal homeowners as well. For example, a
technician that does electrical installation, such as cable
or internet in a home, could file a wage lien under Ŭthis
bill] on that home because that is the site where work was
performed. The real estate market in California is still
struggling from the recession. If Ŭthis bill] is enacted,
it will basically eliminate any opportunity for recovery,
thereby destroying jobs in California?.
?This bill will negatively impair an employer's opportunity
to seek future financing that is secured against the
residential real property?This will preclude an employer
from being able to refinance their mortgage or secure a
home equity line of credit, even in the event of an
emergency. The employer will not be able to expand or hire
new employees due to the inability to secure financing to
do so. In short, no lender is going to extend a loan to
someone with a super-lien placed on their real or person
property. Finally, under Ŭthis bill], it is unclear
whether there will be sufficient disclosure by the LC
informing employers of the ramifications should a super
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lien be recorded.
Article 1, Section 9 of California's Constitution states
the following: "A bill of attainder, ex post facto law, or
law impairing the obligation of contracts may not be
passed." The Constitution of the United States declares in
Article I, Section 10, that "No state shall enter into any
treaty, alliance, or confederation; grant letters of marque
and reprisal; coin money; emit bills of credit; make
anything but gold and silver coin a tender in payment of
debts; pass any bill of attainder, ex post facto law, or
law impairing the obligation of contracts, or grant any
Title of Nobility."
With respect to Ŭthis bill's] creation and recordation of a
super lien for the payment of unpaid wages, the measure
creates a violation of the terms of the mortgage or deed of
trust for any prospective mortgage contract after the
bill's enactment. The measure impairs the obligation of
the mortgage contract in violation of the state and federal
constitutions."
Again, this opposition was submitted regarding the introduced
version of the bill. It is not clear whether opponents continue
to have the same concerns to the bill in its recently-amended
form (limited to the car washing and polishing industry).
However, out of an abundance of caution, the original opposition
arguments are included here.
REGISTERED SUPPORT / OPPOSITION :
Support
California Employment Lawyers Association
California Immigrant Policy Center
California Labor Federation, AFL-CIO
California Rural Legal Assistance Foundation
CLEAN Car Wash Campaign
Jewish Labor Committee, Western Region
Maintenance Cooperation Trust Fund
National Day Laborer Organizing Network
The Wage Justice Center
Women's Employment Rights Clinic of Golden Gate University
School of Law
Worksafe, Inc.
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Oppose unless amended
California Land Title Association
Opposition
American Council of Engineering Companies California
Associated Builders and Contractors of California
Associated General Contractors
Building Owners and Managers Association of California
California Association for Health Services at Home
California Association of Bed & Breakfast Inns
California Association of Health Facilities
California Attractions and Parks Association
California Bankers Association
California Building Industry Association
California Business Properties Association
California Chamber of Commerce
California Chapter of the American Fence Association
California Farm Bureau Federation
California Fence Contractors' Association
California Grocers Association
California Hotel & Lodging Association
California Independent Grocers Association
California League of Food processors
California Manufacturers and Technology Association
California Mortgage Bankers Association
California Restaurant Association
California Retailers Association
Engineering Contractors' Association
Flasher Barricade Association
International Council of Shopping Centers
Marin Builders Association
NAIOP of California, the Commercial Real Estate Development
Association
Western Growers Association
Analysis Prepared by : Ben Ebbink / L. & E. / (916) 319-2091