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 Senate Committee on Labor and Industrial Relations (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 Consultant: Deanna D. Ping Page 3 Senate Committee on Labor and Industrial Relations 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 Consultant: Deanna D. Ping Page 4 Senate Committee on Labor and Industrial Relations 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 Senate Committee on Labor and Industrial Relations 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