BILL ANALYSIS                                                                                                                                                                                                    Ó






                 Senate Committee on Labor and Industrial Relations
                              Senator Ben Hueso, Chair

          Date of Hearing: June 25, 2014               2013-2014 Regular  
          Session                              
          Consultant: Deanna D. Ping                   Fiscal:Yes
                                                       Urgency: No
          
                                  Bill No: AB 1723
                                  Author: Nazarian
                          As Introduced: February 14, 2014 
          

                                       SUBJECT
          
                                 Employees: wages. 


                                      KEY ISSUE

          Should the legislature authorize the Labor Commissioner to  
          include "waiting time" penalties in wage citations? 

                                      ANALYSIS
          
          Existing law  authorizes the Labor Commissioner to investigate  
          and enforce statutes and orders of the Industrial Welfare  
          Commission that, among other things, specify the requirements  
          for the payment of wages by employers. 

           Existing law  provides the Labor Commissioner with the authority  
          to investigate employee complaints and allows the Labor  
          Commissioner to hold a hearing in any action to recover wages,  
          including orders of the Industrial Welfare Commission.  The  
          Labor Commissioner may require an award in the amount of the  
          wages owed, plus interest. 
          (Labor Code §§ 98 & 98.2)

           Existing law  allows the division or department to commence and  
          prosecute a civil action to recover unpaid minimum wages or  
          unpaid overtime compensation, including interesting thereon.  
          (Labor Code §1193.6) 
           
          Existing law  provides that an employee who receives less than  
          the minimum wage is entitled to recover in a civil action, the  
          unpaid balance of the full amount of the minimum wage,  









          liquidated damages in an amount equal to the wages unlawfully  
          unpaid and interest thereon, reasonable attorney's fees and  
          costs of suit. (Labor Code §1194) 
           
          Existing law  provides that, in a citation for a minimum wage  
          violation issued by the Labor Commissioner, an employer shall be  
          subject to a specified civil penalty and restitution of wages. 
          (Labor Code §1197.1) 

           Existing law  provides that if an employer willfully fails to pay  
          any wages of an employee who is discharged or who quits, the  
          wages of the employee shall continue as a penalty from the due  
          date thereof at the same rate until paid or until an action  
          therefor is commenced; but the wages shall not continue for more  
          than 30 days. (Labor Code §203) 
           

          This bill  provides that minimum wage citations issued by the  
          Labor Commissioner will also include any applicable "waiting  
          time" penalties provided for under existing law, as specified.  

          Specifically,  this bill  states that, in a citation by the Labor  
          Commissioner for failure to pay minimum wage, an employer who  
          fails to pay the minimum wage shall be subject to pay 'waiting  
          time' penalties - which under statute is defined as the wages of  
          an employee who is discharged or quits from the due date until  
          paid or until an action is commenced. The wages shall not  
          continue for more than 30 days. 

                                      COMMENTS
          
          1.  Need for this bill?

             Under existing law, there are generally three main avenues  
            available under the Labor Code for the recovery of unpaid  
            minimum wages.

            First, an employee may file an administrative wage claim with  
            the Labor Commissioner.  (Labor Code Section 98).  Existing  
            law provides for an administrative hearing process for the  
            adjudication of such claims, including wages, penalties, and  
            other demands for compensation, including liquidated damages.   
          Hearing Date:  June 25, 1014                             AB 1723  
          Consultant: Deanna D. Ping                               Page 2

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            (Labor Code Section 98).  These administrative hearings are  
            usually referred to as "Berman hearings."

            Second, an employee may file a civil action to recover the  
            full amount of the minimum wage, including interest,  
            reasonable attorney's fees and costs of suit.  (Labor Code  
            Section 1194).  In such a civil action, an employee shall also  
            be entitled to liquidated damages in an amount equal to the  
            wages unlawfully paid.  (Labor Code Section 1194.2).

            Third, existing law authorizes the Labor Commissioner to issue  
            a citation for failure to pay the state minimum wage after an  
            inspection or investigation.  (Labor Code Section 1197.1).   
            Existing law provides that the employer shall be subject to a  
            civil penalty, restitution of wages, and liquidated damages  
            payable to the employee.  Existing law also provides for an  
            administrative hearing process for a person to contest a  
            citation or proposed assessment of civil penalties, wages and  
            liquidated damages.  (Labor Code Section 1197.1).  

            Under a different provision of existing law, when an employer  
            willfully fails to pay any wages of an employee who is  
            discharged or who quits, the wages of the employee continue as  
            a penalty for up to 30 days.  (Labor Code Section 203).  These  
            wages are often referred to as "waiting time" penalties and  
            are generally designed to ensure the prompt payment of earned  
            wages.  Actions to recover unpaid minimum wages often include  
            claims for "waiting time" penalties under Labor Code Section  
            203.

            Under existing law, the Labor Commissioner lacks the statutory  
            authority to recover "waiting time" penalties as part of a  
            citation for a minimum wage violation. According to the  
            author's office, AB 1723 will ensure that workers have the  
            same monetary relief whether they pursue their claims  
            administratively, by the way of the courts, or via the Labor  
            Commissioner's existing authority as well as promoting the  
            prompt payment of owed wages.

                                          
          2.  Labor Code §203 and "Willfully" Defined 
           
          Hearing Date:  June 25, 1014                             AB 1723  
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            According to Labor Code §203, an employer will be held  
            responsible for "waiting time" penalties if they willfully  
            fail to pay, without abatement or reduction, any wages of an  
            employee who is discharged or who quits. In the California  
            Code of Regulations, a definition of willfully is assigned to  
            this specific code section as well as the explanation that if  
            there is a good faith dispute that any wages are due will  
            preclude such penalties. The regulations state: 

               A willful failure to pay wages within the meaning of Labor  
               Code Section 203 occurs when an employer intentionally  
               fails to pay wages to an employee when those wages are due.  
               However, a good faith dispute that any wages are due will  
               preclude imposition of waiting time penalties under Section  
               203.


               (a) Good Faith Dispute. A "good faith dispute" that any  
               wages are due occurs when an employer presents a defense,  
               based in law or fact which, if successful, would preclude  
               any recover on the part of the employee. The fact that a  
               defense is ultimately unsuccessful will not preclude a  
               finding that a good faith dispute did exist. Defenses  
               presented which, under all the circumstances, are  
               unsupported by any evidence, are unreasonable, or are  
               presented in bad faith, will preclude a finding of a "good  
               faith dispute."

               (California Code of Regulations §13520) 

            Meaning, under AB 1743, a citation under §203 by an  
            investigator would require the investigator to find that the  
            employer intentionally failed to pay owed wages, and if  
            applicable presented a defense in bad faith as explicitly  
            referenced above. However, an employer under Labor Code  
            §1197.1(c)(1) may contest a citation or proposed assessment by  
            notifying the Labor Commissioner of his or her request for an  
            informal hearing. 


          2.  Proponent Arguments  :
            
          Hearing Date:  June 25, 1014                             AB 1723 
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            Proponents argue that AB 1723 will ensure that victims of wage  
            theft will recover any applicable "waiting time" penalties  
            when the Labor Commissioner issues a citation for a minimum  
            wage violation. Proponents argue that the Division of Labor  
            Standards and Enforcement currently lack the statutory  
            authority to recover application "waiting time" penalties  
            after a citation for a minimum wage violation. Proponents  
            maintain that without the legal authority to recover these  
            monetary penalties for workers as part of a BOFE/DLSE minimum  
            wage citation, state policy to ensure prompt payment of wages  
            is significantly undercut, and workers are denied all that is  
            due to them following a theft of their wages. Proponents also  
            argue that because the payment of 'waiting time' penalties,  
            where applicable, is mandatory, of the Labor Commissioner/BOFE  
            does not recover them when it cites for a minimum wage  
            violation, workers will simply file a subsequent "Berman  
            hearing" administrative claim or a civil action to recover  
            them. Proponents contend that these hearings will create  
            unnecessary and completely avoidable costs for DLSE, or the  
            courts, and will also result in possibly lengthy delays for  
            workers seeking to be made whole after theft of their wages. 
            
          3.  Opponent Arguments  :

            Opponents argue that the expansion of the capacity of  
            investigators employed by the Labor Commission places  
            employers at a disadvantage because the establishment of  
            underpayments should remain under the purview of an  
            administrative hearing. Opponents note that during a hearing  
            the complaint, investigation, and the employer's documentation  
            are reviewed. Opponents contend that if the hearing process is  
            eliminated it is uncertain if the investigator will have the  
            same information. Opponents further state that the bill also  
            expands penalties, which include liquidated damages, which  
            elevates the need for a fair hearing to ensure employers have  
            equal protections under the law.  

            Opponents also suggest the inclusion of an amendment to ensure  
            that an investigator properly considers the heightened  
            standard of "willfulness" for purposes of imposing waiting  
            time penalties. Opponents requested AB 1723 be amended to  
            include that any citation must specify in writing the basis  
          Hearing Date:  June 25, 1014                             AB 1723  
          Consultant: Deanna D. Ping                               Page 5

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            for finding willfulness to justify an assessment of waiting  
            time penalties. Opponents argue that by specifying this  
            standard in writing, it will provide an employer with adequate  
            notice in order to assist the employer in determining whether  
            an appeal of the citation is necessary. 

          4.  Prior Legislation  :

            AB 442 (Nazarian), Chapter 735, Statutes of 2013 - authorized  
            the Labor Commissioner to collect liquidated damages from an  
            employer who pays an employee less than minimum wage.

            AB 240 (Bonilla), Chapter 272, Statutes of 2012 - amended   
            Labor Code sections 1194.2 and 98 to authorize the Labor  
            Commissioner to award unpaid minimum wage liquidated damages  
            in administrative wage claim hearings under the same  
            conditions that existed for allowing a court to award those  
            same damages to workers.

            AB 469 (Swanson), Chapter 655, Statutes of 2011 - known as the  
            Wage Theft Prevention Act of 2011, the bill enacted several  
            anti-wage theft initiatives including extending the period  
            within which the division may commence a collection action  
            from one year to three years and in addition to being subject  
            to a civil penalty and makes it a misdemeanor if an employer  
            willfully violates specified wage statutes or orders, among  
            other provisions. 

                                       SUPPORT
          
          California Rural Legal Assistance Foundation (Sponsor)
          California Federation of Teachers, AFL-CIO
          California Labor Federation, AFL-CIO
          
                                     OPPOSITION
          
          Air Conditioning Trade Association
          Associated Builders and Contractors - San Diego Chapter
          California Association for Health Services at Home
          California Association of Licensed Security Agencies, Guards and  
          Associates
          California Chamber of Commerce
          Hearing Date:  June 25, 1014                             AB 1723  
          Consultant: Deanna D. Ping                               Page 6

          Senate Committee on Labor and Industrial Relations 
          








          California Farm Bureau Federation
          California Pool and Spa Association 
          California Professional Association of Specialty Contractors
          California Restaurant Association 
          California Retailers Association
          Plumbing-Heating-Cooling Contractors Association of
          Western Electrical Contractors Association 
          Western Growers Association

































          Hearing Date:  June 25, 1014                             AB 1723  
          Consultant: Deanna D. Ping                               Page 7

          Senate Committee on Labor and Industrial Relations