BILL ANALYSIS Ó
AB 1164
Page 1
Date of Hearing: April 23, 2013
ASSEMBLY COMMITTEE ON JUDICIARY
Bob Wieckowski, Chair
AB 1164 (Lowenthal) - As Amended: March 21, 2013
As Proposed to be Amended
SUBJECT : Liens: Employees and Workers
KEY ISSUE : SHould an EMPLOYEE be authorized to record and
enforce a lien against an employer's real or personal property,
and other property as specified, for unpaid wages?
FISCAL EFFECT : As currently in print this bill is keyed fiscal.
Synopsis
This bill would permit an employee to record and enforce a lien
against an employer's real or personal property for unpaid
wages, and against any property upon which the employee has
bestowed labor. Under existing law, a person who contributes
labor, skill, or services to a work of improvement has the right
to record a "mechanic's lien" on the improved property. This
bill would effectively extend this law by permitting an employee
to record a lien against any property that the employer owns for
failure to pay wages. The lien could attach to any property,
real or personal, that the employer owns, and it would not
necessarily be restricted to the property upon which the
employee's labor was bestowed. (However, the author will take
an amendment in this Committee that will generally exempt
residential properties.) The wage lien would be extinguished if
the employee did not record notice of the lien within one year
of ceasing to work for the employer. With regard to a lien on
real property, the employee must record notice of the lien in
the county in which the property is situated; with regard to a
lien on personal property, the employee must file notice of the
lien with the Secretary of State. In either case, the notice
must be executed under penalty of perjury and explain the basis
of the amount owed. Finally, the wage lien would take
precedence over all other liens, claims, or encumbrances
perfected after the filing or recording of notice, and, as to
the first $50,000 of the amount claimed, the wage lien would
take precedence over all other liens, claims, or encumbrances
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perfected prior to the date of filing or recording notice of the
lien. However, under this latter "super priority" provision
(taking precedence over prior perfected liens, the wage lien
would not take precedence over a tax or other government lien, a
purchase money mortgage, or other liens that arise of the
performance of labor, including mechanics liens. The bill is
supported by several labor groups and opposed by employer and
business groups. The author will take amendments in this
Committee which will exempt residential properties, as
specified, for the reasons described below. The summary below
reflects these amendments. While these amendments address some
of the concerns raised by the opposition, they do not remove the
opposition.
SUMMARY : Authorizes an employee to record and enforce a wage
lien upon an employer's property, as specified. Specifically,
this bill :
1)Provides that an employee shall have a lien for the full
amount of any wages, other compensation, and related penalties
and damages owed to the employee on the following property:
a) All property of the employer, including any
after-acquired property. However, as proposed to be
amended a lien shall not apply to the employer's personal
residence, except as specified.
b) The property upon which the employee bestowed labor,
provided that the amount of the lien on this property
shall be equal to the amount of wages, compensation, and
related penalties and damages accrued during the time the
employee bestowed labor on that specific property.
However, as proposed to be amended, the lien would not
apply to the personal residence of a person who is not
the employer.
1)Specifies that the lien amount shall include unpaid wages,
other compensation, penalties and damages available under the
Labor Code, prejudgment interest, and the costs of filing and
serving the lien. The amount of compensation that may be
claimed as a lien includes all wages agreed to be paid to the
employee, but not less than the amount required by law,
including "employer payments" as described in Labor Code
Section 1773.1. An employee's lien upon personal property
shall be limited to a security interest, as defined.
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2)Specifies who shall have standing to bring an action and
provides that the lien authorized by this bill is in addition
to any other lien rights held by the employee and shall not be
construed to limit these rights.
3)Provides that the lien authorized by this bill shall be
permanently extinguished unless a notice of lien is recorded
and served within one year of the date that the employee
ceased working for the employer. Requires the employee to
commence action to enforce the lien within 180 days of filing
or recording notice of the lien.
4)Requires, with regard to a lien on real property, the employee
to record notice of the lien with the county recorder in the
county in which the property is located, and further requires
the lien to be executed under penalty of perjury and include
specified information.
5)Requires, with regard to a lien on personal property, the
employee to file a notice of lien with the Secretary of State,
as specified, and further requires the notice to be executed
under penalty of perjury and include specified information.
6)Specifies that in order to enforce a lien authorized by this
bill, the employee shall demonstrate in a civil action or in
an administrative proceeding before the Labor Commissioner,
that he or she is owed wages, compensation, or penalties and
damages.
7)Provides that the employee is entitled to court costs and
reasonable attorneys' fees for filing a successful action to
enforce the lien.
8)Grants to a lien authorized by this bill precedence over all
other liens, claims, or encumbrances perfected after the date
that the notice of the lien is filed or recorded and makes the
lien effective against the estate of the employer, or any
subsequent purchaser of the property subject to the lien. In
addition, as to the first $50,000 of the amount claimed, the
lien authorized by this bill takes precedence over all other
liens, claims, or encumbrances perfected prior to the date of
filing or recording of the notice of lien, except for tax or
other government liens, purchase money mortgages, and liens
that arise from the performance of other labor, including
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mechanics liens.
EXISTING LAW :
1)Gives mechanics, persons furnishing materials, artisans, and
laborers of every class the right to file a lien upon the
property upon which they have bestowed labor or furnished
material for the value of such labor and material. Requires
the Legislature to provide, by law, for the speedy and
efficient enforcement of such liens. (Article XIV Section 3
of the California Constitution.)
2)Sets forth the obligations, rights, and remedies of those
involved in a construction project with regard to mechanics
liens and generally regulates the conditions under which a
mechanics lien may be enforced. (Civil Code Sec. 8400 et
seq.)
3)Recognizes prejudgment wage liens against property as a remedy
in certain industries, including agriculture (Civ. Code §
3061.5-3061.6), logging (Civ. Code § 3065), and mining (Civ.
Code § 3060).
4)Permits an employee to file a claim with the Department of
Labor Standards Enforcement for unpaid wages, compensation,
and penalties. Authorizes the State Labor Commissioner to
investigate complaints, hold hearings on a claim, and issue an
appropriate order, decision, or award, and allows either party
to appeal an order, decision, or award made by the
Commissioner to the appropriate civil court. (Labor Code
Sections 98 through 98.2.)
COMMENTS : According to the author, "California has one of the
highest rates of wage theft in the country" and cites studies
which claim that 30% of low-wage workers in Los Angeles are paid
less than the minimum wage and that 80% are not paid for
overtime. Making matters worse, the author claims, it can take
up to two years to go through the Labor Commissioner or civil
court to file a wage claim. If the business closes or goes
bankrupt before the employee wins his or her case, there is
often nothing left to collect. This bill would, subject to
certain exemptions, permit a worker who has not been paid his or
her wages to file a lien against the employer's real or personal
property, or a property upon which the employee bestowed labor
for the amount of wages or other compensation owed. As proposed
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to be amended in this Committee, the lien would not apply to a
personal residence, except where the employee bestowed labor
that benefitted the personal residence of the offending
employer.
The Problem of "Wage Theft" : 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 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.
(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).)
Another study 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, late payments, stealing tips, and
employer retaliation. (Milkman, Gonzalez and 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).) 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. The
survey estimated that, in a given week, 654,914 workers in Los
Angeles County suffer at least one pay-based violation.
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.
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Effectiveness of Existing Methods of Recovering Unpaid Wages :
Under existing law, when an employer fails to pay wages due, the
employee has the right to file a claim against his or her
employer (or former employer) with the Department of Labor
Standards Enforcement (DLSE), which is directed by the State
Labor Commissioner. The Labor Commissioner has jurisdiction over
most private sector employees, except those that are bona fide
independent contractors. In some cases, according to case law,
the Commissioner does not have jurisdiction over those working
under collective bargaining agreements. Existing law requires
an employee who feels that his or her wages have been wrongly
withheld must go through DLSE and according to statutorily
prescribed procedures. (Labor Code Section 98 et seq.) After
conducting an investigation, the Labor Commissioner may hold an
administrative conference or hearing, or both. If a party is
unhappy with the Commissioner's decision, it can appeal to the
appropriate civil court. (Labor Code Section 98.2.) However,
the author contends that even where a worker wins a favorable
decision, the process of collecting the award is often difficult
and ineffective. Irresponsible employers may have already
hidden their cash assets, declared bankruptcy, or otherwise
become judgment-proof. According to the author, state agencies
simply do not have the resources to collect wages even where a
decision has been rendered in favor of the employee. Giving
employees a "wage lien" - similar to but in many ways broader
than the customary "mechanic's lien" - would provide an
additional and arguably more effective tool for an employee to
recover unpaid wages.
Mechanic's Lien Not Available to Most Workers : In addition to
permitting claims to be filed with the DLSE and Labor
Commissioner, the California Constitution gives "mechanics,
persons furnishing materials, artisans, and laborers of every
class the right to file a lien upon the property upon which they
have bestowed labor or furnished material for the value of such
labor and material." To further this end, the state
constitution requires the Legislature to provide, by law, for
the speedy and efficient enforcement of such liens.
Accordingly, provisions of the Civil Code set forth the
obligations, rights, and remedies of those involved in a
construction project. However, the author claims that the
mechanic's lien is inadequate for most workers. For example, it
is generally only available to construction workers (and a few
others specially provided for by statute) and it only allows the
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worker to place a lien on the property upon which labor was
bestowed. An employee who performed labor that did not entail
construction or making an improvement to real property - such as
service work, for example - cannot make use of a mechanic's
lien.
Property Subject to Lien : This bill would permit an employee to
file a lien for unpaid wages and other compensation against any
real or personal property of the employer - though this would
not include a personal residence as proposed to be amended -
whether the worker bestowed any labor on the subject property or
not. The wage lien provided by this bill, in other words, is
not, like a mechanic's lien, a lien against the improvement made
to the property. Rather, it is more akin to a lien against
property for an unpaid debt. In addition - and most
controversially from the point of view of the opponents of this
measure - the employee could also place a lien on any property
upon which he or she bestowed labor, even if that property was
not owned by the offending employer. For example, opponents
cite as a possible scenario a situation in which a cable company
employee installs cable service in the home of a cable
subscriber but then is not paid by the cable company. In that
scenario, the subscribing homeowner would be subject to a lien
against his or her property because of the wrongdoing of the
cable company. (As discussed below, as proposed to be amended,
this bill would clarify that a lien could not be recorded
against a personal residence of someone who was not the
offending employer. However, even as proposed to be amended,
the lien could be applied to commercial property, even though
the commercial property owner was not the wrong-doing employer.)
Finally, the lien could be filed upon both personal and real
property. In the case of real property, the lien would be filed
with the county recorder; in the case of personal property, the
lien would be filed with the Secretary of State.
"Super-Priority" Lien Provisions : In addition to giving an
employee the right to file a lien to recover unpaid wages, the
bill would also give the wage lien precedence over all other
liens, claims, or encumbrances perfected after the date that the
notice of the lien is filed or recorded. This could mean that a
wage lien would take precedence over a notice of another lien
that was filed before the wage lien but not yet perfected.
Moreover, at least as to the first fifty thousand dollars, the
wage lien would take precedence over all other liens, claims, or
encumbrances that were perfected prior to the filing or
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recording of the notice of the wage lien. However, the wage
lien would not have super-priority over a tax lien or other
government loan, a purchase money mortgage, or other liens that
arise from the performance of labor, including a mechanic's
lien. As noted below, opponents contend that granting
super-priority status to wage liens will negatively affect the
real estate market and mortgage contracts. The author and
proponents of the bill, on the other hand, argue that priority
status is necessary because, unlike other creditors, such as
banks, an employee generally has no duty to perform due
diligence to make sure the debtor has the capacity to pay a
debt. In addition, the author contends, workers, unlike banks
and other business creditors, cannot afford delay in payment of
their wages, which are needed to pay rent, buy food, and provide
for other necessities.
ARGUMENTS IN SUPPORT : The Wage Justice Center (WJC), one of the
bill's co-sponsors, describes its first-hand experience in the
difficulties of attempting to collect wage judgments. Under
existing law, WJC claims, workers either never recover wages or
only recover after a period of up to two years. And this is
true even though they have been awarded a favorable ruling from
the Labor Commissioner. WJC points out that the concept of a
prejudgment wage lien is not a novel concept, noting that this
is afforded to under current California law for construction
workers, farm workers, and loggers. WJC contends that there is
"no justifiable reason for limiting this right to only these
industries."
The California Federation of Labor (CFL) claims that "one of the
greatest challenges [it faces] is the widespread wage theft
faced by low-wage workers." Not only do studies suggest that
wage theft is becoming more common, CFL claims, but that it has
also "become harder to effectively enforce [wage violations] in
recent years. With the rise of subcontracting and the explosion
in the use of temporary agencies, it has become harder to track
who the real employer is and who to hold accountable." CFL also
contends that businesses in the underground economy have become
more adept at hiding assets, and that state agencies lack
resources to match ever more sophisticated means of evasion. In
support of this contention the CFL cites a 2004 California State
Auditor report which concluded that the Franchise Tax Board was
only able to collect about 20% of the worker wage claims it had
been assigned.
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The California Employment Lawyers Association (CELA) supports
this bill for many of the same reasons cited by WJC and CFL, but
it adds that "this bill does not expand government or create new
wage and hour laws - it enforces what is already on the books.
The wage lien is a proven, simple legal tool that costs the
state next to nothing. It creates no new bureaucracies and no
new agencies with complicated enforcement procedures." Instead,
workers would simply file a notice with either the County
Recorder or the Secretary of State for a fee ranging from $10 to
$30. Like any other prejudgment lien, the wage lien authorized
by this bill merely creates "a temporary hold on employer
property while a worker proves his or her claim for wages owed."
CELA echoes a point made by many other supporters of this
measure by noting that liens are not a new concept, but a
time-honored and time-tested remedy that are already used by
construction workers and farm workers.
Dozens of other labor organizations, policy centers, and
community groups support this bill for the substantially the
same reasons as those noted by WJC, CFL, and CELA.
ARGUMENTS IN OPPOSITION : The California Employment Law Council
(CELC) opposes this bill, claiming that it will "permit
employees to tie up employers' real and personal property over a
slight dispute over unpaid wages" and "will have a devastating
effect on the ability of employers to conduct business." CELC
argues that while the bill appears to be patterned to some
degree on the existing mechanic's lien law, "the differences
between the long-established mechanic's lien and AB 1164 are
enormous. The mechanic's lien law applies to a narrow class of
workers who provide labor on specific real property. The
results of the labor almost always result in physical
improvements to property which can be seen and verified." In
contrast, CELC contends, "AB 1164 appears to apply to all real
property owned by the employer, plus all personal property
subject to security interests under the Commercial Code."
According to CELC, this measure will allow employees to "impair
title to real and personal property for at least 18 months after
the employee ceases employment . . . over unproven allegations
of unpaid wages."
A broad coalition of business, financial, and employer groups,
apparently headed by the California Chamber of Commerce, claim
that this "job killer" bill would "cripple California businesses
by allowing any employee, employee representative, or Labor
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Commissioner to file super priority liens on an employer's real
property or any property where an employee 'bestowed labor' for
an alleged, yet unproven, wage claim." The Chamber coalition
claims that this "bill would essentially destroy commercial and
personal real estate [by allowing] a wage lien to take
precedence over almost all other liens or judgments." The
opponents contend that California wage and hour laws are
complex, and that the wages and benefits owed can depend upon a
number of factors (e.g. the classification of the employee).
Thus these disputes often go beyond the simple question of
whether the promised wage rate was paid, according to the
opposition. Yet despite this complexity, opponents claim, an
employee can file a lien against an employer's property - or
even on property owned by someone other than the employer if
labor were bestowed upon the property - on the basis of a mere
allegation without providing any evidence that employer violated
wage or hour laws. (However, it should be noted that the bill
requires somewhat more than a mere allegation; the notice of
lien must be executed under penalty of perjury.) Opponents
contend that because these liens take priority over most other
liens - except tax liens, purchase money mortgages, and other
wage or mechanic's liens - they will wreak havoc with the real
estate industry. Finally, opponents contend that because this
bill permits an employee to record a lien against any property
upon which labor was bestowed, it will affect the property of
persons other than the employer. For example, if an employee
who installs cable or internet service in a residence is not
paid by the cable or internet company, that employee could
record a lien against the home where the labor was bestowed,
even though the homeowner was not responsible for the employer's
failure to pay the employee the wages due. (As proposed to be
amended, this latter concern should no longer be an issue.)
PROPOSED AUTHOR AMENDMENTS : As noted above, the opposition
contends, and the Committee tends to agree, that this measure
should make an exemption for personal residences, especially in
regards to the provision that permits an employee to record a
lien against any property upon which the employee bestowed
labor. This would mean that an innocent homeowner would be
subject to a lien because of the wrongdoing of the employer,
even though the homeowner had done nothing wrong and had no
control over the employer. In addition, given the special
protection that the Legislature has often given to a person's
home (e.g. homestead exemptions), this bill would also exempt
the personal residence of the offending employer, unless the
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labor that was performed by the employee actually conferred a
benefit upon the employer's home. In addition, the bill in
print allows the employee to recover all that is due under "the
entire compensation package." Because the meaning of this
phrase is not entirely clear, the author will amend the bill to
make it specify the employee would have the right to claim all
wages promised and other compensation that would qualify as
"employer payments" as defined in existing law.
Therefore, the author will take the following amendments in this
Committee:
- On page 2 line 10 after "property." insert:
However, if the employer is a natural person, the lien
shall not apply to the employer's principal residence,
except to the extent that the employee provided labor for
the benefit of the employer's household or residence.
On page 2 line 11 after "property" insert:
- , other than the principal residence of a person who
is not the employer,"
On page 2 line 21-22 delete "the entire compensation
package" and insert:
- "all wages"
REGISTERED SUPPORT / OPPOSITION :
Support
Hayward Day Labor Center (co-sponsor)
Koreatown Immigrant Workers Alliance (co-sponsor)
San Diego Day Laborer Association (co-sponsor)
SEIU (co-sponsor)
Teamster's Local 396 (co-sponsor)
United Service Workers West (co-sponsor)
The Wage Justice Center (co-sponsor)
California Employment Lawyers Association
California Federation of Labor
California Immigrant Policy Center
California Pipe Trades Council
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California State Association of Electrical Workers
Center for Policy Initiatives
Central American Resource Center
Centro Laboral de Graton (Graton Day Labor Center)
Chinese Progressive Association
Garment Worker Center
Institute of Popular Education of Southern California
La Raza Centro legal
Legal Aid Society - Employment Law Center
Maintenance Cooperative Trust Fund
National Day Laborer Organizing Network
National Employment Law Project
San Diego Day Laborers and Household Workers Association
UCLA Labor Center
Western States Council of Sheet Metal Workers
Worksafe
One Individual
Opposition
Air Conditioning Trade Association
American Council of Engineering Companies California
Associated General Contractors
Building Owners and Managers Association of California
California Association of Health Services at Home
California Association of Realtors
California Bankers Association
California Building Industry Association
California Business Properties Association
California Chamber of Commerce
California Chapter of American Fence Association
California Farm Bureau Federation
California Grocers Association
California Independent Grocers Association
California Land Title Association
California Landscape Contractors Association
California League of Food Processors
California Lodging Industry Association
California Manufacturing and Technology Association
California Mortgage Bankers Association
Camarillo Chamber of Commerce
East Bay Rental Housing Association
El Centro Chamber of Commerce
Engineering Contractors Association
Flasher Barricade Association
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Fullerton Chamber of Commerce
Garden Grove Chamber of Commerce
Greater Conejo Valley Chamber of Commerce
Greater Fresno Area Chamber of Commerce
Greater Riverside Chambers of Commerce
International Council of Shopping Centers
Irwindale Chamber of Commerce
Long Beach Area Chamber of Commerce
Marin Builders Association
NAIOP of California
National Federation of Independent Business
Palm Desert Area Chamber of Commerce
Plumbing-Heating-Cooling Contractors Association of California
Redondo Beach Chamber of Commerce
San Gabriel Coalition of Chambers
Santa Clara Chamber of Commerce
Simi Valley Chamber of Commerce
South Bay Association of Chambers of Commerce
Southwest California Legislative Council
Tulare Chamber of Commerce
Western Electrical Contractors Association
Analysis Prepared by : Thomas Clark / JUD. / (916) 319-2334