BILL ANALYSIS Ó Senate Committee on Labor and Industrial Relations William W. Monning, Chair Date of Hearing: June 26, 2013 2013-2014 Regular Session Consultant: Deanna D. Ping Fiscal:Yes Urgency: No Bill No: AB 1387 Author: Hernandez As Amended: April 18, 2013 SUBJECT Car washes KEY ISSUES Should the Legislature remove the sunset on existing law regulating the car washing and polishing industry, making it a permanent enforcement program in California law? Should the Legislature approve an increase in the surety bond amount required for employers to do business in the state? Should the Legislature approve an exemption for employers with a valid collective bargaining agreement? ANALYSIS Existing law requires every employer to register annually with the Labor Commissioner and lists the following conditions for registration or renewal: 1) The employer must present proof of compliance with the local government's business licensing or regional regulatory requirements to the Labor Commissioner 2) The employer has obtained a surety bond with a principal sum no less than $15,000 and file a copy of the bond with the Labor Commissioner. The bond shall be payable to the people of California for the benefit of any employee damaged by his or her employer's failure to pay wages, interest on wages, or fringe benefits 3) The employer has documented that a worker's compensation insurance policy is in effect and has paid necessary fees (Labor Code §§2054 and 2055) Existing law regulates the car washing and polishing industry by requiring specific recordkeeping requirements of car wash employers on employee wages, hours and working conditions. (Labor Code §2052) Existing law establishes a car wash worker fund for which penalties and registration fees are deposited for disbursement by the Labor Commissioner to employees of car washing or polishing businesses found to be in violation of current law. (Labor Code §2065) Existing law states that charitable groups, rental car agencies, self-service or automated car wash that have no more than two full-time employees for cashiering and/or maintenance purposes, and licensed vehicle dealers or automotive repair businesses are exempted. (Labor Code §2051) This bill makes changes to existing law regulating the car washing and polishing industry. Specifically, this bill : 1)Eliminates the sunset date on existing law regulating the car washing and polishing industry, thereby making it a permanent enforcement program under California law. 2)Increases the surety bond amount required from $15,000 to $150,000. 3)Provides that the surety bond requirements do not apply to an employer covered by a valid collective bargaining agreement if the agreement expressly provides for wages, hours of work, working conditions, and an expeditious process to resolve disputes concerning nonpayment of wages. COMMENTS Hearing Date: June 26, 2013 AB 1387 Consultant: Deanna D. Ping Page 2 Senate Committee on Labor and Industrial Relations 1. Background on Legislative Efforts to Regulate the Car Wash Industry In 1999, SB 1097 (Hayden), which sought to regulate the car wash industry, was vetoed by the Governor. 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 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 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, and required the LC to report to the Legislature no later than December 31, 2008, on the status of labor law violations and enforcement in the car washing and polishing industry. In March 2008, the Los Angeles Times reported the results of an investigation of the car wash 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 -including underpaying workers, hiring minors, operating without workers' compensation insurance and denying workers their meal and rest Hearing Date: June 26, 2013 AB 1387 Consultant: Deanna D. Ping Page 3 Senate Committee on Labor and Industrial Relations breaks. The Division of Labor Standards Enforcement in the Department of Industrial Relations released the mandated study of the car wash and polishing industry in April of 2009. In the report, DLSE said the number of registered firms increased from 2007 to 2008 and that the number of citations decreased in that period. However, the report found that there continue to be hundreds of violations of labor standards. Many firms had no workers' compensation for their workers, and there were many other violations of labor law (e.g., child labor violations, and failure to pay minimum wages and overtime pay). AB 236 (Swanson) of 2009 extended the sunset date to January 1, 2014. 2. Need for this bill? According to the author, California leads the nation with estimates of more than 1600 car washes and more than 22,000 employees by said car washes in the State. Legislative enforcement efforts over the last decade have targeted this industry to deter the future abuse of car wash workers. In 2011, the Bureau of Field Enforcement (BOFE) within DLSE inspected 626 car washes and issued 468 citations. BOFE found wages due of $210,092 and collected $282,603 (which included claims from prior years). In addition, BOFE assessed civil penalties to car washes in the amount of $3,086,892, of which $868,912 was collected. In 2012, the BOFE inspected 162 car washes and issued 157 citations. BOFE found wages due of $652,389 and collected $74,665 and assessed over $2 million in penalties. As stated above, the current law contains a January 1, 2014 sunset date. According to the author, this bill would eliminate the sunset date on existing law regulating the car washing and polishing industry, thereby making the much needed program a permanent enforcement program under the law. Existing law also requires employers in the car washing and polishing industry to obtain a surety bond of not less than $15,000. However, according to the author, a typical wage Hearing Date: June 26, 2013 AB 1387 Consultant: Deanna D. Ping Page 4 Senate Committee on Labor and Industrial Relations claim for an individual employee in this industry is around $35,000, and can be much higher when multiple workers file a claim. The author's office provided data on 23 prior or pending wage claims which range from $23,000 (for an individual wage claim) to approximately $2 million (for a class action lawsuit) - illustrating that the current bond requirement amount of $15,000 is insufficient. If passed, AB 1387 would increase the bond requirement to $150,000. This bill would also provide that the surety bond requirement would not apply to an employer covered by a valid collective bargaining agreement that contains, among other things, an expeditious process to resolve disputes concerning nonpayment of wages. In such situations, unpaid wage claims are generally resolved through the grievance process under the collective bargaining agreement, rather than seeking to collect against the surety bond. 3. Proponent Arguments : The CLEAN Carwash Campaign supports this bill, and states that it will help to continue to better regulate the carwash industry in California that for too long has been part of the underground economy in our state. CLEAN states that carwash workers in California have been able to utilize this law in the past to assert their rights and this should be the case permanently. CLEAN contends that by lifting the sunset clause in this law will ensure that thousands of carwash workers in our state can assert their rights. CLEAN references a 2009 study conducted by UCLA that found 655,000 workers in Los Angeles alone experience serious wage theft, thirty percent receive less than minimum wage, while a staggering 80% are denied lawful breaks -a sum total of these violations amounts to $26.2 million in stolen wages each year. CLEAN argues that because of the rampant violations of labor law in the car wash industry, the Legislature passed a law in 2004 requiring car washes to register with the State and post a bond. CLEAN contends that as that law has been implemented, enforcement efforts in the underground economy have improved and - for the first time- workers have had access to justice. Hearing Date: June 26, 2013 AB 1387 Consultant: Deanna D. Ping Page 5 Senate Committee on Labor and Industrial Relations Supporters of this bill argue that in order to wash and clean such a high number of vehicles, carwash employers routinely violate basic labor laws such as those requiring rest breaks or providing shade and clean drinking water. They also contend that workers have reported kidney damage, respiratory problems and nerve damage due to chemical exposure. Supporters argue that the car wash registry is continually on the verge of being eliminated and the surety bond amount is too low to cover the wages actually owed to workers. Supporters also argue that there are no exceptions for upstanding employers who are doing right by their workers and raising the bar for the industry. Supporters contend that this bill is the answer as it eliminates the sunset date -preserving one of the most effective tools in labor law enforcement and raises the bond amount to cover stolen wages, making sure workers are protected. 4. Concerns from the Surety Industry : The Surety & Fidelity Association of America (SFAA) expressed concern with the increased surety bond provision of AB 1387. According to SFAA, the $150,000 surety bond requirement would not be widely available. SFAA contends that when bond amounts increase or if the scope of the obligations expands, surety companies may tighten their underwriting parameters. SFAA states that if the statute requires an unduly high bond size, some car wash companies in California may not be able to obtain the required higher bonds because they will need to demonstrate a higher financial position (net worth, working capital, liquid assets) relative to the bond amount. According to SFAA such a high bond amount could unduly preclude small car wash companies from doing business in California. SFAA suggests a more moderate increase to $20,000 or $25,000 as to not unduly restrict participation in the market for car wash companies. 5. Opponent Arguments : None on file. Hearing Date: June 26, 2013 AB 1387 Consultant: Deanna D. Ping Page 6 Senate Committee on Labor and Industrial Relations 6. Prior Legislation : AB 236 (Swanson), Chapter 224, Statutes of 2009 - extended the sunset date of the licensing and registration program for car washes from January 1, 2010 to 2014. SB 1468 (Alarcon), Chapter 656, Statutes of 2006 - extended the sunset date of the licensing and registration program to January 1, 2010 and required the Labor Commissioner to report on the status of labor law violations and enforcement in the car washing and polishing industry. AB 1688 (Goldberg), Chapter 825, Statutes of 2003 - enacted regulations for the car wash industry including registration and bonding requirements, as well as protections against 'successor' entities avoiding previous judgments for unpaid wages or penalties. SB 1097 (Hayden) of 1999 - would have required persons who employ others in car washing and polishing to register with the Labor Commissioner and would have required an employer who has violated specified labor laws to obtain a surety bond and meet other specified requirements. SB 1097 was vetoed by Governor Davis. SUPPORT American Civil Liberties Union of California Asian Americans Advancing Justice - Los Angeles Asian Pacific American Legal Center California Labor Federation, AFL-CIO California Rural Legal Assistance Foundation Clergy and Laity United for Economic Justice - Los Angeles Coalition for Humane Immigrant Rights of Los Angeles Communications Workers of America, District 9 Community - Labor - Environmental Action Network (CLEAN) Carwash Campaign Enlace Koreatown Immigrant Workers Alliance The Wage Justice Center United Steelworkers, Local 675 Hearing Date: June 26, 2013 AB 1387 Consultant: Deanna D. Ping Page 7 Senate Committee on Labor and Industrial Relations CONCERNS The Surety & Fidelity Association of America OPPOSITION None on file. Hearing Date: June 26, 2013 AB 1387 Consultant: Deanna D. Ping Page 8 Senate Committee on Labor and Industrial Relations