BILL ANALYSIS                                                                                                                                                                                                    Ó






                 Senate Committee on Labor and Industrial Relations
                                 Ted W. Lieu, Chair

          Date of Hearing: March 13, 2013              2013-2014 Regular  
          Session                              
          Consultant: Deanna D. Ping                   Fiscal: Yes
                                                       Urgency: No
          
                                   Bill No: SB 168
                                   Author: Monning
                       As Introduced/Amended: February 4, 2013
          

                                       SUBJECT
          
              Farm labor contractors: successors: wages and penalties.


                                      KEY ISSUE

          Should the legislature hold the successor of a farm labor  
          contractor liable for the predecessor's owed wages or penalties  
          to former employees? 


                                      ANALYSIS
          
           Existing law  requires that if an employee is found to have been  
          paid less than the minimum wage, that employee must be paid  
          liquidated damages in an amount that is equal to the wages  
          unlawfully unpaid, plus 10 percent interest. (Labor Code §1194.2  
          and Civil Code § 3289)

           Existing law  designates a farm labor contractor as any person  
          who, for a fee: 

                 employs workers to render personal services in  
               connection with the production of any farm products to,  
               for, or under the direction of a third person
                  recruits, solicits, supplies, or hires workers on  
               behalf of any employer engaged in the growing or producing  
               of farm products
                 provides one of the following services: furnishes board,  
               lodging, or transportation for those workers; supervises,  
               times, checks, counts, weighs, or otherwise directs or  
               measure their work; or disburses wage payments to these  









               persons. (Labor Code §1682)

           Existing law  requires a license issued by the Labor Commissioner  
          before a person can act as a farm labor contractor. (Labor Code  
          §1683)

           Existing law  states that upon final determination of the Labor  
          Commissioner that a grower, a farm labor contractor, or person  
          acting in the capacity of a farm labor contractor has failed to  
          pay wages to its employees, the grower, farm labor contractor,  
          or person acting in the capacity shall immediately pay those  
          wages. If payment is not made within 30 days the Labor  
          Commissioner shall forward the matter to the local district  
          attorney's office. (Labor Code §1697.3)


           Existing law  states that a successor to any employer that is  
          engaged in sewing or assembly of garments or car washing and  
          polishing is liable for the predecessor's former employees owed  
          wages and penalties if the successor meets  any  of the following  
          criteria: 

             1)   Uses substantially the same facilities or work force to  
               produce substantially the same products for substantially  
               the same type of customers as the predecessor employer

             2)   Shares in the ownership, management, control of labor  
               relations, or interrelations of business operations with  
               the predecessor employer

             3)   Has in its employ in a managerial capacity any person  
               who directly or indirectly controlled the wages, hours, or  
               working conditions of the affected employees of the   
               predecessor employer 

             4)   Is an immediate family member of any owner, partner,  
               officer, or director of the predecessor employer or of any  
               person who has a financial interest in the predecessor  
               employer (Labor Code §2684 and §2066) 

           
          This Bill  would hold a successor to any farm labor contractor  
          Hearing Date:  March 13, 2013                            SB 168  
          Consultant: Deanna D. Ping                               Page 2

          Senate Committee on Labor and Industrial Relations 
          








          business liable for owed wages or penalties to former employees  
          if  any  of the following criteria is met: 

             1)   Uses substantially the same facilities or workforce to  
               offer substantially the same services as the predecessor 

             2)   Shares in the ownership, management or control of the  
               workforce

             3)   Employs in a managerial capacity anyone who directly or  
               indirectly controlled the wages or working conditions of  
               the employees of the predecessor employer 

             4)   Is an immediate family member of any owner, partner,  
               officer, licensee or director of the predecessor employer  
               or of any person who had a financial interest in the  
               predecessor employer 


                                      COMMENTS

          
          1.  Succession Provisions in the Garment and Car Wash Industry 
                                           
            In 1999, Assembly Member Steinberg introduced AB 633 - a bill  
            that sought to stunt the growing underground economy's  
            violations of wage and hour, safety, and tax laws. Proponents  
            of the bill argued that employers cheated workers out of  
            billions of dollars in wages owed to them under minimum wage  
            and overtime statute, but current law did not adequately deter  
            and penalize employers for such violations. Proponents  
            specifically targeted the garment manufacturing industry  
            because of the proliferation and poor working conditions of  
            sweatshops. AB 633 included a variety of provisions from  
            providing employees the right to recover civil penalties to  
            establishing successor liability for owed wages and penalties  
            if the successor also engaged in the business of garment  
            manufacturing and meets specified criteria including the use  
            of substantially the same facilities, sharing in the ownership  
            or management, or employing managers from the predecessor  
            employer. The bill passed through both houses and was signed  
            by the Governor that September. 
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            A few years later AB 1688 passed in both houses and was signed  
            by the Governor in 2003. The bill aimed to regulate the  
            employment of workers in the car washing and polishing  
            industry. The bill included required annual registration of  
            employers in the car washing and polishing industry and  
            failure to register penalties. AB 1688 also included a  
            successor liability provision that was almost identical to AB  
            633. Proponents of this bill similarly argued that the measure  
            would prevent sweatshop-like conditions in the car wash  
            industry and ensure workers get paid the required wage. 


          2.  Need for this bill?

            SB 168 is modeled after the previous legislation discussed  
            above that signed into law a successor provision for the  
            garment manufacturing and car wash industry in 1999 and 2003  
            respectively. The measure aims to hold a successor to a  
            licensed or unlicensed farm labor contractor liable for the  
            owed wages or penalties of the predecessor's former employees  
            if they meet specified criteria. 

          3.  California Courts and Successorship Provisions:  

            In People ex rel. Harris v. Sunset Care Wash, LLC (205 Cal.  
            App. 4th, 2012) the plaintiff filed an action against Sunset  
            Car Wash, LLC to recover unpaid wages and penalties owed by  
            the defendant Auto Spa Express, Inc. which had operated a  
            carwash at the same location before being evicted by the  
            property owner. The trial court denied a motion for summary  
            judgment filed by Sunset Carwash and ruled that because it  
            operated at the same location and performed the same services  
            it was considered a successor under Labor Code section 2066.  
            In its decision the Court noted that the Legislature was  
            motivated to enact the Section 2066 provisions by its findings  
            that carwash operators sometimes employed practices that  
            resulted in state labor law violations. 

          4.  Proponent Arguments  :
            
            The sponsor of this measure, the California Rural Legal  
          Hearing Date:  March 13, 2013                            SB 168  
          Consultant: Deanna D. Ping                               Page 4

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            Assistance Foundation (CRLA), believes SB 168 would prevent  
            licensed or unlicensed Farm Labor Contractors (FLC) from  
            engaging in wage theft. According to CRLA, there have been  
            numerous instances where employees attempt to recover their  
            unpaid wages and applicable penalties for non-payment of wages  
            through the Labor Commissioner and find that the offending FLC  
            has gone out of business. However, CRLA contends that the FLC  
            has not really gone out of business, but instead reorganized  
            with family members or former associate and nominally running  
            the business under a different (or new) FLC license and name.  
            The sponsors specifically point out the experience of one  
            family for which CRLA is trying to collect lost wages but the  
            FLC has reorganized no less than six times - each time with a  
            different name and different family member or associate  
            holding the license. 

            The sponsor also asserts that although several complaints have  
            be filed with the Department of Labor Standards Enforcement  
            (DLSE) about improper FLC licenses being issued to individuals  
            or entities created solely to avoid prior obligations, DLSE  
            has not had a system in place to prevent this problem from  
            occurring. CRLA maintains that a law that makes FLC successors  
            liable for the unpaid wages of FLC predecessors would  
            eliminate the incentive to create false FLC licensees and help  
            ensure that workers are paid what they are owed. 

            Lastly, CRLA argues that farm workers should be provided with  
            the same protections from fraudulent 'successor' farm labor  
            contractor businesses as the Legislature provided to garment  
            and carwash workers - specifically drawing attention to the  
            California Courts decision to uphold the successorship  
            provisions. 


          5.  Opponent Arguments  :

            None received. 


          5.  Prior Legislation  :

            AB 1688 (Goldberg), Chapter 825, Statutes of 2003, enacted  
          Hearing Date:  March 13, 2013                            SB 168  
          Consultant: Deanna D. Ping                               Page 5

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            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.

            AB 633 (Steinberg), Chapter 554, Statutes of 1999, enacted  
            reforms that increased regulation of garment manufacturers and  
            contractors including a 'successor' provision that is  
            substantively identical to SB 168. 


                                       SUPPORT
          
          CA Rural Legal Assistance Foundation (Sponsor)
          California Labor Federation, AFL-CIO 
          The Wage Justice Center
          
                                     OPPOSITION
          
          None on file. 





















          Hearing Date:  March 13, 2013                            SB 168 
          Consultant: Deanna D. Ping                               Page 6

          Senate Committee on Labor and Industrial Relations