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

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          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

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            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

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            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

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            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

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          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