BILL ANALYSIS Ó
SB 377
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Date of Hearing: August 14, 2013
ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT
Roger Hernández, Chair
SB 377 (Lieu) - As Amended: May 9, 2013
SENATE VOTE : 28-10
SUBJECT : Public works: project determinations: wage and
penalty assessments.
SUMMARY : Enacts various requirements related to prevailing
wage determinations and related assessments. Specifically, this
bill :
1)Provides that when a political subdivision believes that a
project in which it is interested (as defined) is not a public
work, it shall notify the Department of Industrial Relations
(DIR), the Labor Commissioner, and any person who has asked
for such notice within 30 days of the commencement of any work
estimated to last six months or more (or before the
commencement of any work for projects not estimated to exceed
six months).
2)Requires DIR to determine whether a specific project is a
public work within 60 days.
3)Specifies that if DIR deems that the complexity of the request
requires additional time, DIR may have up to an additional 60
days, as specified.
4)Provides that if the requestor of a determination is not an
awarding body, the requester shall serve a copy of the request
upon the awarding body. In such a case the awarding body
shall advise DIR of its position regarding the request within
15 days of receipt of the request.
5)Provides for an administrative appeal process, as specified.
6)Provides that DIR shall have quasi-legislative authority to
determine coverage of projects under prevailing wage laws and
a final determination on any appeal is subject to judicial
review, as specified.
7)Provides that period of service for assessments and
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enforcement actions filed by joint labor-management committees
shall be tolled during the period when a determination is
being made or appealed.
8)Provides that these same periods of service shall also be
tolled for the period that a contractor or subcontractor fails
to provide in a timely manner certified payroll records as
required under existing law.
9)Makes related findings and declarations.
FISCAL EFFECT : According to the Senate Appropriations
Committee, DIR estimates that it would incur staffing costs of
$580,000 (special funds) for additional staff and related
equipment expenses to implement the provisions of the bill.
Additionally, the bill would result in database costs to DIR to
capture the interested political subdivision, the parties and
any person that has asked for that notice the reason and all the
pertinent dates and timeframes pursuant to the decision process
for the determinations. The estimated cost for this on-line
notification system is $230,000 in the first year of
implementation plus $50,000 ongoing for operation and
maintenance.
COMMENTS : The bill enacts various provisions related to
determinations of whether a specific project is a "public works"
project and therefore triggers prevailing wage requirements
under existing law.
A Brief History of State and Federal Prevailing Wage Law
State prevailing wage laws vary from state to state, but do
share a common history that actually predates federal prevailing
wage law. Many of these state laws were enacted as part of
general reform efforts to improve working conditions at the end
of the 19th and the beginning of the 20th centuries. Between
1891 and 1923, seven states adopted prevailing wage laws that
required payment of specified hourly wages on government
construction projects. The State of Kansas enacted the first
prevailing wage law in 1891.
Eighteen additional states and the federal government adopted
prevailing wage laws during the Great Depression of the 1930s
amidst concern that acceptance of the low bid, a common
requirement of government contracting for public projects when
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government had become the major purchaser of construction, would
operate to reduce the wages paid to workers on those projects to
a level that would disrupt the local economy.
California's prevailing was law was enacted in 1931.
In general, the proponents of prevailing wage legislation wanted
to prevent the government from using its purchasing power to
undermine the wages of its citizens. It was believed that the
government should set an example, by paying the wages prevailing
in a locality for each occupation hired by government
contractors to build public projects. Thus, prevailing wage
laws are generally meant to ensure that wages commonly paid to
construction workers in a particular region will determine the
minimum wage paid to the same type of workers employed on
publicly funded construction projects.
Most public construction projects contracted for or by the
federal government or the District of Columbia are covered by
the federal prevailing wage law, the Davis-Bacon Act (Act),
while 33 states have prevailing wage laws, often referred to as
"little Davis-Bacon Acts," that encompass projects financed by
states and their political subdivisions.
The federal Davis-Bacon Act was enacted by Congress in 1931.
The Act requires workers employed under public construction
contracts of the federal government in excess of $2,000 to be
paid a minimum wage that the United States Department of Labor
determines to be prevailing for corresponding classes of
workers. In addition, sixty separate federal laws currently
specify the payment of Davis- Bacon wages for work prescribed.
The federal government also has two additional prevailing wage
laws - the Walsh-Healy Public Contracts Act of 1935 (which
covers federal contractors in manufacturing and supply
industries), and the O'Hara-McNamara Services Act of 1965 (which
covers service contracts).
The United States Supreme Court has stated the public policy
underlying the Davis-
Bacon Act as one of:
"protecting local wage standards by preventing contractors
from basing their bids on wages lower than those prevailing
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in the area . . . [and] giving local labor and the local
contractor a fair opportunity to participate in this
building program." Universities Research Ass'n. v. Coutu
(1981) 450 U.S. 754, 773-774).
General Background on "Public Works" Under California Law
In general, "public works" is defined to include construction,
alteration, demolition, installation or repair work done under
contract and "paid for in whole or in part out of public funds."
Over a decade ago, there was much administrative and legislative
action over what constituted the term "paid for in whole or in
part out of public funds." This action culminated in the
enactment of SB 975 (Alarcón), Chapter # 938, Statutes of 2001,
which codified a definition of "paid for in whole or in part out
of public funds" that included certain payments, transfers,
credits, reductions, waivers and performances of work. At the
time, supporters of SB 975 stated that it established a
definition that conformed to several precedential coverage
decisions made by the Department of Industrial Relations (DIR).
These coverage decisions defined payment by land, reimbursement
plans, installation, grants, waiver of fees, and other types of
public subsidy as public funds for purposes of prevailing wage
law. According to the sponsors, SB 975 was intended to remove
ambiguity regarding the definition of public subsidy of
development projects.
SB 975 also exempted certain affordable housing, residential and
private development projects that met certain criteria.
Follow-up legislation, SB 972 (Costa), Chapter # 1048, Statutes
of 2002, was intended to clarify the application of SB 975 and
was the result of extensive discussions between the State
Building and Construction Trades Council (sponsor of SB 975),
affordable housing advocates, and the Davis Administration.
Supporters of SB 972 contended that the original legislation had
unintended consequences for self-help housing and housing
rehabilitation projects. As a result of that compromise, SB 972
exempted from public works requirements the construction or
rehabilitation of privately-owned residential projects that met
certain criteria.
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Why It Matters: "Prevailing Wage"
The determination of whether a project is deemed to constitute a
"public work" is important because the Labor Code requires
(except for projects of $1,000 or less) that the "prevailing
wage" to be paid to all workers employed on public works
projects.
Stated Need for the Bill
According to the author, under current law there is no
notification requirement for an awarding body to inform
interested individuals when a project it has a legal interest in
is not a public work. Currently, a city can put a project for
bid without determining the project's status as a public works
project first. This lack of a determination allows the
contractor with the winning bid to pay its workers below the
legally mandated prevailing wage if in fact the project is a
public work and required the payment of prevailing wage from
inception. This bill would require an awarding body to notify
the Director of Industrial Relations and Labor Commissioner, as
well as any person who has requested said notice, if a project
is not a public works. This notification requirement would help
clear up any ambiguity as to a project's public work status.
Current law also does not provide a set deadline for the
Director of Industrial Relations to issue a determination of a
project's public work status and the Labor Commissioner to serve
a civil wage and penalty assessment when a determination is
made. According to the author's office, there have been cases
where it has taken over two or three years to receive these
determinations and reach a resolution. The issue with this long
wait time is that the statute of limitations to bring a civil
action runs out - preventing workers from being able to collect
their owed wages. This bill seeks to impose time limits on the
process for the determination of a project's public work status
and the civil wage and penalty assessment. This would alleviate
the long wait time many workers have experienced and this bill's
tolling (or delaying) of the 180 day statute to after the
receipt of the public works determination provides sufficient
time for workers to pursue civil action for the owed wages.
ARGUMENTS IN SUPPORT :
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Supporters argue that current law lacks a sufficient
notification requirement for public works projects to inform the
public about whether a project is determined to be a public
works. They contend that this allows an awarding body to put
out a project for bid without a determination - resulting in the
contractor to pay below the prevailing wage, depriving workers
of their lawful wages. Supporters argue that this bill's
notification requirement will ensure that the contractor with a
winning bid of a public works project will pay the lawfully
mandated prevailing wage.
Supporters further argue that current law fails to provide a set
deadline for the Labor Commissioner to serve a civil wage and
penalty assessment to determine a violation. They maintain that
this lack of a streamlined appellate process causes workers to
have to suffer through a long waiting period before learning if
there was in fact a wage violation. Supporters contend when a
decision is finally granted, the long wait time often leaves
workers without any options because the statute of limitations
for legal action has run out - eliminating the worker's
opportunity to collected the owed wages.
ARGUMENTS IN OPPOSITION :
According to the Associated Builders and Contractors of
California, this bill sets out a revised process where a public
entity has a new duty to self-report projects they deem to not
be a public works. This bill also extends the date that the
Labor Commissioner can assess non-payment of prevailing wage
penalties.
Opponents believe this bill unreasonably extends contractor
exposure to legal challenges and liability for new fines and
penalties because the date actions can commence is based on when
the Division of Labor Standards Enforcement makes a
determination of whether or not a project is a public works.
They contend that the construction industry is just beginning to
recover. California also has some of the most stringent labor
laws and penalties for violating those requirements. Opponents
do not see a reason to increase contractor liability at this
time.
In addition, the California Special Districts Association
opposes this bill, raising particular concerns about the
requirement that local agencies notify DIR if they conclude that
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a project is not a "public work." They contend that the
provisions of the bill are vague and unclear and raise numerous
unanswered questions regarding this notification requirement.
REGISTERED SUPPORT / OPPOSITION :
Support
California Labor Federation, AFL-CIO
Construction Employers' Association
International Union of Operating Engineers (sponsor)
State Building and Construction Trades Council of California
Opposition
Associated Builders and Contractors of California
California Special Districts Association
Department of Finance
Analysis Prepared by : Ben Ebbink / L. & E. / (916) 319-2091