BILL ANALYSIS Ó
SB 168
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Date of Hearing: June 26, 2013
ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT
Roger Hernández, Chair
SB 168 (Monning) - As Amended: April 8, 2013
SENATE VOTE : 21-11
SUBJECT : Farm labor contractors: successors.
SUMMARY : Establishes successor liability for farm labor
contractors (FLCs) as specified. Specifically, this bill
provides that a FLC successor to any predecessor FLC that owed
wages or penalties (regardless of whether the predecessor FLC
was licensed or not) is liable for those wages and penalties if
the successor FLC meets one or more of the following criteria:
1)The FLC uses substantially the same facilities or workforce to
offer substantially the same services as the predecessor FLC.
2)The FLC shares in the ownership, management, control of the
workforce, or interrelations of business operations with the
predecessor FLC.
3)The FLC employs in a managerial capacity any person who
directly or indirectly controlled the wages, hours, or working
conditions of the employees owed wages or penalties by the
predecessor FLC.
4)The FLC is an immediate family member of any owner, partner,
officer, licensee, or director of the predecessor FLC or of
any person who had a financial interest in the predecessor
FLC.
EXISTING LAW requires FLCs to be licensed by the Labor
Commissioner and to comply with specified employment laws.
FISCAL EFFECT : According to the Senate Appropriations
Committee pursuant to Senate Rule 28.8, negligible state costs.
COMMENTS : This bill seeks to hold a successor to a licensed or
unlicensed FLC liable for the owed wages or penalties of the
predecessor's former employees if they meet specified criteria.
This legislation is patterned after similar successor liability
provisions applicable to the garment manufacturing and car wash
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industries.
Related Successor Provisions in the Garment Manufacturing and
Car Wash Industries
In 1999, then-Assemblymember 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.
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.
Specifically, the provisions of existing law state that a
successor to any employer that is engaged in garment
manufacturing 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
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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.
Recent Successorship Case in the Car Wash Context
The sponsor of this bill notes that 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.
The court also held that the imposition of liability against a
successor who operates at the same location as a predecessor car
wash employer does not constitute a violation of due process.
Specifically, the court stated:
"In the context of the car wash industry, section 2066
provides the necessary notice of the potential for
successor liability for labor law violations. Any entity
commencing business in the industry is presumptively aware
of the requirements of [the law]?Presumptively aware of the
potential for liability, a person or entity considering
commencing a car washing business is placed on notice in
section 2066 of the liability potential and may protect
itself by the exercise of due diligence, indemnity
agreements, or insurance."
However, opponents of this bill point to the Sunset Car Wash
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case as an example of how this bill may result in unintended
consequences. Opponents contend that in that case, a subsequent
car wash employer was found to constitute a successor after the
prior operator was evicted merely because they used
substantially the same facilities and offered substantially the
same services as the predecessor car wash. Opponents contend
that this bill, because it utilizes an essentially similar
factor, could impose successor liability on an FLC merely
because they use substantially the same workforce as a
predecessor FLC (see further discussion in committee staff
comment, below).
ARGUMENTS IN SUPPORT :
The sponsor of this measure, the California Rural Legal
Assistance Foundation (CRLA), believes
that this bill would prevent licensed or unlicensed FLCs 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.
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Finally, 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.
ARGUMENTS IN OPPOSITION :
Opponents, including the California Chamber of Commerce, oppose
this bill and argue that given the ambiguity of the term
"successor," the bill could unfairly impose wage and hour
liability on entities and individuals who had no control,
connection, or ability to affect the working conditions and
payment of wages to the employees whom are owed. They contend
that the common law definition of a "bona fide successor"
requires a stronger connection between the predecessor and
subsequent employer before imposing liability onto the
successor.
A coalition of agricultural employers opposes this bill, stating
the following:
"We applaud the sponsor, California Rural Legal Assistance,
for tackling a chronic problem where a FLC's license is
revoked and a new license is issued to an immediate family
member with a significant workforce or financial interest
in the preceding FLC's license. The law needs to be
changed to preclude a 'bad operator' from skirting around
the law's intent by simply substituting the name of the
predecessor FLC licensee with that of another owner,
partner, or immediate family member who was and remains
active running the FLC's business.
At the same time, we are very concerned about the
unintended consequences that could arise if the language in
[this bill] were to become law. This bill is modeled after
current law to protect employees working at a car wash.
Unfortunately, the courts have interpreted existing law in
a manner that could negatively impact our industry if [this
bill] continues with its cut and paste approach.
Specifically, the courts have found that any one of the
factors included in [this bill] is sufficient to find a
subsequent party a successor. This finding does not
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support the common law definition of successor. We believe
this issue can be rectified and have shared amendments with
the author and the sponsor with the hope of reaching an
agreement.
Unfortunately, until the language is resolved we must take
an opposed position."
In addition, the Construction Employers' Association states
that, although this bill is limited to the agriculture industry,
they are concerned about the precedent this bill sets and
potential future application to the construction industry.
COMMITTEE STAFF COMMENT :
The sponsor of this bill argues that the legislation is
patterned after similar successor liability provisions
applicable to the garment manufacturing and car wash industries.
However, agricultural employers contend that there are unique
dynamics in the agriculture industry that make application of
the same factors problematic.
This debate has largely focused on the first of the four
factors, which reads:
"Uses substantially the same facilities or workforce to
offer substantially the same services as the predecessor
farm labor contractor."
Opponents argue that agriculture is different from the garment
or car wash industries because the very nature of the
agriculture industry is dynamic and workers may be employed by
different FLCs for different crops during the same harvest
season. For example, a crew of employees may work for one FLC
harvesting one particular crop for one particular grower.
However, when that crop is harvested, the entire crew (or a
substantial majority thereof) may go on to work for a different
FLC on a different crop (perhaps for a different grower).
Opponents contend that in this example, the second FLC might be
found liable under the bill merely because they used
"substantially the same workforce" as the predecessor FLC.
Opponents contend that this would impose liability where there
was not a true successor relationship or any nefarious intent to
avoid obligations of the law.
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The sponsor and opponents have been in discussions about these
issues, but at the time of preparation of this analysis had not
yet reached an agreement on proposed amendments to address these
concerns. The parties may wish to continue discussing ways to
enact meaningful successorship provisions to address admittedly
problematic actors in this industry without creating unintended
consequences for legitimate FLC employers.
REGISTERED SUPPORT / OPPOSITION :
Support
California Catholic Conference, Inc.
California Communities United Institute
California Conference Board of the Amalgamated Transit Union
California Conference of Machinists
California Labor Federation, AFL-CIO
California Rural Legal Assistance Foundation (sponsor)
California Teamsters Public Affairs Council
Engineers and Scientists of California
International Longshore and Warehouse Union
Numerous Individuals
Professional and Technical Engineers, Local 21
The Wage Justice Center
UNITE HERE!
United Farm Workers
United Food and Commercial Workers Union, Western States Council
Utility Workers Union of America, Local 132
Opposition
Agricultural Council of California
California Association of Nurseries and Garden Centers
California Association of Wheat Growers
California Bean Shippers Association
California Chamber of Commerce
California Citrus Mutual
California Cotton Ginners Association
California Cotton Growers Association
California Farm Bureau Federation
California Grain and Feed Association
California Grape and Tree Fruit League
California Pear Growers Association
California Seed Association
California State Floral Association
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California Tomato Growers Association
Civil Justice Association of California
Construction Employers' Association
Nisei Farmers League
Pacific Egg and Poultry Association
Western Agricultural Processors Association
Western Growers Association
Wine Institute
Analysis Prepared by : Ben Ebbink / L. & E. / (916) 319-2091