BILL ANALYSIS Ó
Senate Committee on Labor and Industrial Relations
Ted W. Lieu, Chair
Date of Hearing: January 11, 2012 2011-2012 Regular
Session
Consultant: Gideon L. Baum Fiscal:Yes
Urgency: No
Bill No: SB 725
Author: Berryhill
As Introduced/Amended: March 30, 2011
SUBJECT
Prevailing wages.
KEY ISSUE
Should the Legislature create a new system for determining
prevailing wage rates that may reduce wages for workers on
public works projects in certain localities?
PURPOSE
To eliminate the "modal rate" system for determining prevailing
wage rates, limit the factors that may be included as a per diem
wage, provide a new method for determining vacation dates, and
establishes a new method for determining prevailing wages.
ANALYSIS
Existing law defines the term "public works" to include, among
other things, construction, alteration, demolition, installation
or repair work done under contract and paid for in whole or in
part out of public funds, except work done directly by any
public utility company pursuant to an order of the Public
Utilities Commission or other public authority. (Labor Code
§1720)
Existing law requires the payment of not less than the general
prevailing wage rate to all workers employed on "public works"
projects over one thousand dollars ($1,000). (Labor Code §1771)
Existing law requires that the body awarding any contract or
otherwise undertaking any public work must obtain the general
prevailing rate of per diem wages and the general prevailing
rate for holiday and overtime work in the locality in which the
public work is to be performed for each craft, classification,
or type of worker needed to execute the contract from the
Director of Industrial Relations. (Labor Code §1773)
Existing law provides that when the Director of the Department
of Industrial Relations is determining the prevailing rate of
per diem wages, the Department must utilize a "modal rate"
methodology, which defines the prevailing wage as the hourly
wage rate being paid to a majority of workers in a particular
craft within a given locality. If no single rate is being paid
to a majority of the workers, then the single rate being paid to
the greatest number of workers is the prevailing rate. (Labor
Code §1773.9)
Existing law provides that, for the purposes of prevailing
wages, per diem wages are defined as employer payments that
include:
1) Health and welfare;
2) Pension;
3) Vacation;
4) Travel;
5) Subsistence;
6) Apprenticeship or other training programs;
7) Worker protection and assistance programs or committees
established under federal collective bargaining law; and
8) Industry advancement and collective bargaining
agreements administrative fees.
Employer payments are a credit against the obligation to pay the
general prevailing rate of per diem wages. Credits for employer
payments also shall not reduce the obligation to pay the hourly
straight time or overtime wages found to be prevailing. (Labor
Code §1773.1)
Existing law provides that, when determining the prevailing wage
rates, the Director of Industrial Relations must consider the
Hearing Date: January 11, 2011 SB 725
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Senate Committee on Labor and Industrial Relations
applicable wage rates established by collective bargaining
agreements and the rates that may have been predetermined for
federal public works, within the locality and in the nearest
labor market area. Where the rates do not constitute the rates
actually prevailing in the locality, the director shall obtain
and consider further data from the labor organizations and
employers or employer associations concerned. (Labor Code
§1773)
This bill eliminates the "modal rate" methodology for
determining the prevailing wage rate, replacing the "modal rate"
methodology with a "weighted average" methodology which requires
the Director of the Department of Industrial Relations (DIR) to
do the following:
a) Conduct a survey of the wages paid for work performed in
each locality in which the public work is to be performed
for each craft, classification or type of worker needed;
and
b) Use an average of the wage rates surveyed, weighted by
the total employed for each craft, classification, or type
of work.
This bill would remove the requirement that the Director of the
Department of Industrial Relations consider wage rates
established by collective bargaining agreements and federal
prevailing wage rates in determining the prevailing wage.
This bill would exclude employer payments to worker protection
and assistance programs, industry advancement fees, and
collective bargaining agreement administrative fees when
determining the prevailing wage rate.
This bill would limit payable holidays and bar the use of a
collective bargaining agreement from setting the holiday
schedule.
This bill also provides that addresses of individual employees
shall be deleted from copies of certified payroll records
provided to joint labor-management committees under existing
law.
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Senate Committee on Labor and Industrial Relations
This bill also makes other conforming changes by deleting
related provisions of existing law.
COMMENTS
1. A Brief History of State and Federal Prevailing Wage Law:
State prevailing wage laws vary from state to state, but do
share a common history that predates federal prevailing wage
law. Many of these state laws were enacted as part of
Progressive Era reform efforts to improve working conditions
at the end of the 19th and the beginning of the 20th
centuries. Between 1891 and 1923, seven states adopted
prevailing wage laws that required payment of specified hourly
wages on government construction projects.
Eighteen additional states (including California in 1931) and
the federal government adopted prevailing wage laws during the
Great Depression of the 1930s amidst concern that acceptance
of the low bid, a common requirement of government contracting
for public projects, would reduce local wages and disrupt the
local economies. This was particularly in the depths of the
Great Depression, where, for some local economies, the
government had become the primary purchaser of construction
products and a significant employer.
In general, the proponents of prevailing wage legislation
wanted to prevent the government from using its purchasing
power to undermine the wages of its citizens. It was believed
that the government should set an example, by paying the wages
prevailing in a locality for each occupation hired by
government contractors to build public projects. Even today,
prevailing wage laws are generally meant to ensure that wages
commonly paid to construction workers in a particular region
will determine the minimum wage paid to the same type of
workers employed on publicly funded construction projects.
2. A Brief History on the "Modal Rate" Methodology:
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Senate Committee on Labor and Industrial Relations
The modal rate prevailing wage methodology has a long history
in California, which culminated in an administrative, legal
and legislative battle in the late 1990s.
The California regulation first implementing the modal rate
was adopted in 1956. However, on five separate occasions
between 1983 and 1990, DIR considered changing the methodology
for determining the prevailing wage rate to an "average wage
rate" when no single rate is the majority rate paid to
workers. Each time DIR decided not to move forward with
changing the methodology.
Then, beginning in 1995, DIR attempted to implement regulatory
changes to the process, proposing to eliminate, among other
things, the modal rate and replace it with a weighted average.
In 1996-97, Governor Wilson's proposed budget for DIR
requested an augmentation of $1.26 million and 20 staff
positions to implement a revised methodology. This proposal
was rejected by the Budget Conference Committee.
In 1997, the Legislature passed Assembly Concurrent Resolution
17 (Lockyer). Among other things, ACR 17 declared that the
modal rate was the methodology that had been recognized for
the previous forty years, was the only methodology recognized
by law, and condemned DIR for attempting to implement a
regulation which contradicted the law it was supposed to
enforce.
The proposed regulatory changes, and the funding of DIR
activities related to implementation of the revised
methodology, were also subject to litigation. On May 9, 1997,
the First District Court of Appeal held that DIR had exceeded
its authority by spending funds that had been specifically
denied by the Legislature. That same day, a Sacramento
Superior Court judge issued a restraining order in a separate
lawsuit seeking to prevent DIR from implementing its new
regulations on the prevailing wage methodology. Three weeks
later, the same court ruled that the modal rate method of
determining prevailing wages could not be changed without
legislative approval.
All of this action culminated with the enactment of SB 16
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Senate Committee on Labor and Industrial Relations
(Burton) of 1999 which codified the modal rate methodology.
2. Proponent Arguments :
Associated Builders and Contractors (ABC) is the sponsor and
strongly supports SB 725. ABC argues that SB 725 gives the
California Division of Labor Statistics and Research a means
to calculate and determine more accurate state-mandated
construction wage rates within various regions of California.
ABC also argues that SB 725 eliminates additional fringe
benefits from the per diem wage calculations, which ABC
believes are unnecessary and add to the cost of public works
projects. Finally, ABC notes that SB 725 "establishes a
common-sense policy for more accurately calculating prevailing
wage rates by conducting surveys in local labor markets and
determining a weighted average" without referencing collective
bargaining agreements.
3. Opponent Arguments :
The State Building and Construction Trades of California
(SBCTC) are in strong opposition to SB 725. SBCTC argues that
the existing prevailing wage system provides vitally important
middle class jobs to thousands of workers throughout
California. SBCTC notes that the existing prevailing wage
methodology is the product of years of legislative,
regulatory, and judicial struggle and ensures that the people
of California are provided a quality product with their public
works dollars. SBCTC also notes that the payment of
prevailing wages ensures that employers and the general public
receive a construction product at a low cost, citing low
injury rates and the experience of states which repealed their
prevailing wage provisions, only to see significant cost
overruns.
The California Labor Federation, AFL-CIO is also opposed to
this bill. The Labor Federation argues that the standard this
bill seeks to create is ill-defined, unworkable, and ignores
data gathered by employers and labor organizations. The Labor
Federation also argues that "the language clearly seeks to
lower prevailing wage levels as much as possible. At a time
when our economy is struggling and businesses are barely
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Senate Committee on Labor and Industrial Relations
scraping by, it makes no sense to take money out of local
economies."
4. Prior Legislation :
AB 988 (Grove) of 2011 was identical to this bill. AB 988 was
held in the Assembly Committee on Labor and Employment earlier
this month.
AB 987 (Grove) of 2011 would have limited the scope of public
works projects and is identical to SB 727 (Berryhill) of 2011,
which this Committee will hear on January 11th. AB 987 was
held in the Assembly Committee on Labor and Employment earlier
this month.
AB 1927 (DeVore) of 2006 also required the deletion of
addresses of individual employees shall be deleted from copies
of certified payroll records provided to joint
labor-management committees under existing law. AB 1927 was
held in the Assembly Committee on Labor and Employment.
SB 16 (Burton), Chapter 30, Statutes of 1999 was discussed
above.
SUPPORT
Associated Builders and Contractors of California (ABC)
(Sponsor)
7 Individuals
OPPOSITION
California Labor Federation, AFL-CIO
State Building and Construction Trades Council of California
Hearing Date: January 11, 2011 SB 725
Consultant: Gideon L. Baum Page 7
Senate Committee on Labor and Industrial Relations