BILL ANALYSIS Ó SENATE JUDICIARY COMMITTEE Senator Noreen Evans, Chair 2011-2012 Regular Session SB 293 (Padilla) As Amended March 25, 2011 Hearing Date: April 5, 2011 Fiscal: No Urgency: No TW SUBJECT Payment Bonds: Laborers DESCRIPTION Existing law exempts laborers from having to serve a preliminary notice prior to asserting a claim for payment against private or public works project payment bonds. This bill would clarify that, prior to enforcing a payment bond claim, laborers are exempt from having to serve a preliminary notice. This bill would contain a delayed operative date of July 1, 2012. BACKGROUND 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. While mechanics liens are not available on public works of improvement, existing law provides claimants on public works projects with other statutory remedies, including stop notices and claims against payment bonds. Prior to 1994, preliminary notices were required to be served 90 days after services were commenced in order to assert and enforce a claim against a public works payment bond. Laborers were exempt from this notice requirement. AB 3357 (Goldsmith, Ch. 974, Stats. 1994) reduced the preliminary notice timing requirement from 90 to 20 days and added these same provisions for asserting and enforcing a claim against a private works payment bond. These provisions maintained the preliminary (more) SB 293 (Padilla) Page 2 of ? notice exemption for laborers. (See Civ. Code Secs. 3097, 3098, 3242, and 3252.) Although the preliminary notice statutes specifically exempt laborers from their provisions, the statutes regarding enforcing a payment claim did not specifically exempt laborers from having to serve a preliminary notice. Those statutes contained a cross-reference to the preliminary notice provisions, but project owners and contractors maintained that laborers had to serve a preliminary notice prior to enforcing a payment bond claim. To clarify this apparent ambiguity, AB 2390 (Torrico, 2010) was amended on August 31, 2010, to provide for the provisions contained in AB 2216 (Fuentes, 2010), which died on the Senate Floor. AB 2216, among other things, would have clarified the laborer exemption to the public works payment bond claim enforcement provisions. AB 2390 also failed passage on the Senate Floor. In 1999, the Assembly Judiciary Committee requested the California Law Revision Commission (CLRC) to provide a comprehensive review of mechanics lien law and make suggestions for possible areas of reform. Following initial efforts to substantively revise specific provisions of existing law, the CLRC began studying a general revision of mechanics lien law in 2004. The CLRC believed that the mechanics lien statute had "become increasingly difficult to use, generating litigation over confusing provisions, and often leaving participants unsure of their rights and obligations." Therefore, the CLRC decided that its primary objective would be to revise the statute in a way that would make it easier for all practitioners to use and understand. It placed its highest priority on drafting a "nonsubstantive reorganization of the existing mechanics lien statute that would modernize and clarify existing law." SB 189 (Lowenthal, Ch. 697, Stats. 2010) overhauled the mechanics lien law and was based upon the February 2008 recommendations of the CLRC resulting from its study of mechanics lien law. (California Law Revision Commission, Recommendation, Mechanics Lien Law, February 2008.) In general, the CLRC included substantive changes to existing law only if the proposed reform fell into one of two categories: 1) substantive reforms that were believed to bring about an overarching improvement to the statute as a whole, thereby benefiting all affected persons; and 2) substantive reforms that, although primarily benefiting one group of persons affected by the statute more than others, were perceived not to SB 293 (Padilla) Page 3 of ? unduly burden any other group. (See California Law Revision Commission Memorandum 2009-45, October 13, 2009.) This bill, sponsored by the California State Council of Laborers, would clarify the exemption of public or private works project laborers from the preliminary notice requirements regarding payment bond enforcement. The provisions of this bill would become operative on July 1, 2012, consistent with the provisions of SB 189. CHANGES TO EXISTING LAW 1.Existing law , the California Constitution, provides that mechanics, persons furnishing materials, artisans, and laborers of every class have a lien on the property upon which they bestowed labor or furnished material for the value of such labor done and material furnished. (Cal. Const., art. 14, sec. 3.) Existing law defines laborers, among other things, to mean a person acting as an employee who performs labor upon or bestows skill or other necessary services on a work of improvement. (Civ. Code Sec. 8024.) Existing law exempts laborers from having to serve preliminary notices prior to asserting a claim for payment against private or public works project payment bonds. (Civ. Code Secs. 8200 and 9300.) Existing law requires preliminary notices to be served in accordance with the preliminary notice statutes prior to enforcing a claim against a private or public works project payment bond. (Civ. Code Secs. 8612 and 9560.) This bill would clarify that laborers are exempt from having to serve preliminary notices prior to enforcing a claim against a private or public works project payment bond. 2. Existing law , as enacted by SB 189, becomes operative on July 1, 2012. (Civil Code Section 8000 et seq.) This bill would also become operative on July 1, 2012. COMMENT 1. Stated need for the bill SB 293 (Padilla) Page 4 of ? The author writes: A 1959 change to the Civil Code exempted laborers from the preliminary notice requirement. In 1994, AB 3357 was signed into law, making changes to provisions regarding preliminary notice. The law left it ambiguous as to whether laborers are required to file a preliminary notice before issuing a claim against a bond. In a time of economic uncertainty and with foreclosure rates and unemployment rates at an all-time high, it is important that this ambiguity in current law be clarified. This bill would help ensure that laborers be paid promptly by codifying into law that they are exempt from the twenty day preliminary notice. Laborers rendering services should be paid on a timely basis. Moreover, this bill would prevent any future problems that could arise from the doubt in current law regarding preliminary notices. SB 293 would clear up the uncertainty and codify that laborers are indeed exempt from being required to file a preliminary notice. California State Council of Laborers, the sponsor of this bill, writes: "Since laborers are exempt from the preliminary notice requirement, the current language is ambiguous as to whether a new notice requirement is to be added for laborers. . . . This bill will further clarify the laborers' historic exemption from the requirement to give a 20-day public works preliminary bond notice in order to enforce a claim on any payment bond given in connection with a public work. . . . " 2. Exemption for laborers from preliminary notice requirements This bill would clarify the exemption for public and private works project laborers from the preliminary notice requirements regarding payment bond claims. Under existing law, laborers are exempt from the preliminary notice requirements on private and public works projects. (Civ. Code Secs. 8200 and 9300.) Existing law requires a preliminary notice to be served prior to enforcement of a payment bond claim in accordance with Civil Code Sections 8200 (private works) or 9300 (public works). (Civ. Code Secs. 8612 and 9560.) California State Council of Laborers, the sponsor of this bill, states that confusion exists between contractors, project owners, and laborers on the issue of preliminary notice SB 293 (Padilla) Page 5 of ? requirements. Because laborers are not expressly exempt from the preliminary notice requirements under the payment bond enforcement provisions, contractors and project owners are denying payment bond claims submitted by laborers. Although SB 189, which this bill amends, is not operative until July 1, 2012, the statutes in effect through July 1, 2012 contain these same ambiguities. (See Civ. Code Secs. 3097, 3098, 3242, and 3252.) The enforcement provisions require preliminary notice to be served in accordance with the separate preliminary notice statutes, and these preliminary notice statutes are cross-referenced within the enforcement provisions. This bill would clarify existing law that laborers may enforce a claim against a payment bond and are not required to serve a preliminary notice before hand. Support : Associated General Contractors; Engineering & Utility Contractors Association Opposition : None Known HISTORY Source : California State Council of Laborers Related Pending Legislation : None Known Prior Legislation : See Background. **************