BILL ANALYSIS Ó
Senate Committee on Labor and Industrial Relations
Ted W. Lieu, Chair
Date of Hearing: April 24, 2013 2013-2014 Regular
Session
Consultant: Alma Perez Fiscal:Yes
Urgency: No
Bill No: SB 776
Author: Corbett
As Introduced/Amended: April 15, 2013
SUBJECT
Public works: prevailing wage rates: employer payment credits
KEY ISSUE
Should the Legislature prohibit credit from being granted
[against the obligation to pay prevailing wages] for employer
payments made to monitor and enforce public works laws, unless
it is done through a program or committee established with both
labor and management involvement?
Should California law conform to federal law -- allowing a
fringe benefit payment to count as credit even if those payments
were not made during the same pay period?
ANALYSIS
Existing law requires that workers employed on public works
projects in California be paid the applicable prevailing wage,
as determined by the director of the Department of Industrial
Relations, and that the body awarding a contract assure
compliance with this requirement.
Among other things, existing law regarding "public works"
projects:
Requires that not less than the general prevailing
rate of per diem wages be paid to all workers employed on
a "public works" project costing over $1,000 dollars and
imposes misdemeanor penalties for violation of this
requirement. (Labor Code §1771)
Defines "public work" to include, among other things,
construction, alteration, demolition, installation or
repair work done under contract and paid for in whole or
in part out of public funds.
Defines "paid for in whole or in part out of public
funds" to include, among other things, fees, costs,
rents, insurance or bond premiums, loans, interest rates,
or other obligations normally required in the execution
of a contract that are paid, reduced, charged at less
than fair market value, waived or forgiven by the state
or political subdivision. (Labor Code §1720)
Existing law also stipulates that per diem wages include
employer payments for the following - and provides that these
payments are a credit against the obligation to pay the general
prevailing rate of per diem (Labor Code §1773.1):
1) Health and welfare
2) Pension
3) Vacation
4) Travel
5) Subsistence
6) Apprenticeship or other training programs,
as specified.
7) Worker protection and assistance programs or
committees established under the federal Labor
Management Cooperation Act of 1978 (Section 175a of
Title 29 of the United States Code), to the extent
that their activities are directed to the monitoring
and enforcement of laws related to public works.
8) Industry advancement and collective
bargaining agreements administrative fees, provided
that they are required under a collective bargaining
as specified.
9) Other purposes similar to those specified in
paragraphs (1) to (8), inclusive.
Existing law, however, also provides that these credits for
employer payments do not reduce the employer's obligation to pay
the hourly straight time or overtime wages found to be
Hearing Date: April 24, 2013 SB 776
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Senate Committee on Labor and Industrial Relations
prevailing. [Labor Code § 1773.1(c)]
Existing law specifies that no credit shall be granted for
benefits required to be provided by other state and federal law.
This Bill would establish an additional restriction on credit
granted for employer payments made to monitor and enforce public
works laws.
Specifically, this bill would:
Prohibit credit from being granted for employer payments
made to monitor and enforce laws related to public works if
those payments are not made to a program or committee
established under the federal Labor Management Cooperation
Act of 1978.
Provide that an employer may take credit for those
specified employer payments, even if those payments are not
made (or costs are not paid) during the same pay period for
which credit is taken, if the employer regularly makes
those payments on no less than a quarterly basis.
COMMENTS
1. Background on "Public Works" and Fringe Benefits:
Existing law requires that not less than the general
prevailing wage rate of per diem wages be paid to all workers
employed on a "public works" projects. 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." The
prevailing wage rate is the basic hourly rate paid on public
works projects to a majority of workers engaged in a
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Senate Committee on Labor and Industrial Relations
particular craft, classification or type of work within the
locality and in the nearest labor market area. 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.
The term "prevailing wage" in federal and California law,
includes two components - a basic hourly rate of pay and bona
fide fringe benefits that prevail in an area. Title 29, Part
5, Subpart B of the Code of Federal Regulations and California
Labor Code Section 1773.1 detail the types of fringe benefit
contributions that meet prevailing wage requirements.
Examples of bona fide fringe benefits include health and life
insurance, pension, vacation, apprenticeship or training
programs and public works enforcement programs or committees,
among others. However, payments required by federal, state or
local law [such as social security, unemployment compensation
and workers' compensation program] are not fringe benefit
contributions.
The California Labor Commissioner may assess civil penalties
for violations of prevailing wage law. In addition, a joint
labor management committee established pursuant to the federal
Labor Management Cooperation Act of 1978 may file an action
against any employer who fails to pay prevailing wages as
required by state law.
2. Need for this bill?
Under existing California law, bona fide fringe benefits
allowed to count as credit against the obligation to pay
prevailing wages includes eight enumerated examples (such as
health and welfare, pension, vacation, etc.) and a 9th
category described in the code as "Other purposes similar to
those specified in paragraphs (1) to (8), inclusive." This
category of "other" allows employers to make payments against
the prevailing wage obligation for other similar purposes;
however, the author believes that this broad category has
allowed some employers to reduce an employee's wages to pay
for public works compliance without the employee's involvement
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Senate Committee on Labor and Industrial Relations
in this decision.
This bill would prohibit credit from being granted for
employer payments made to monitor and enforce laws related to
public works if those payments are not made to a program or
committee established under the federal Labor Management
Cooperation Act of 1978 - ensuring both labor and management
involvement in the decision.
Title 29 of the Unites States Code, Section 175a, the federal
Labor Management Cooperation Act of 1978 establishes the
creation of labor management committees for "the purpose of
improving labor management relationships, job security,
organizational effectiveness, enhancing economic development
or involving workers in decisions affecting their jobs
including improving communication with respect to subjects of
mutual interest and concern." By limiting the contributions
that an employer can make, for purposes of public works
enforcement, to only a program or committee established under
the federal Labor Management Cooperation Act, this bill would
ensure that such payments are made with both labor and
employer approval and cooperation.
In addition, this bill would also conform state law to federal
law by providing that qualifying fringe benefit payments may
constitute a credit as long as the contractor transmits
payments at least on a quarterly basis. Federal law [29 CFR
5.5(a)(1)(i)] allows contractors to take a credit against
their obligation to pay prevailing wages for fringe benefit
payments even if the payments are not transmitted during the
same payroll period in which the wages are paid - as long as
this is done on at least a quarterly basis. This bill would
conform California law to this federal requirement.
3. Proponent Arguments :
According to the author, this bill would protect the wages and
fringe benefits of workers on public works projects by
clarifying the requirements for bona fide fringe benefits.
The author argues that, increasingly, contractors selected for
a prevailing wage project that do not typically provide
employee benefits equal to the level required by prevailing
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Senate Committee on Labor and Industrial Relations
wage laws are claiming credit against their obligation to pay
prevailing wages for payments to an employer-sponsored
"contract compliance committee," asserting that these payments
are for "other" purposes within Labor Code Section 1773.1.
The author argues that such payments are problematic for four
reasons, 1) there is nothing joint about these employer
committees as only management participates; 2) workers do not
choose to have a portion of their prevailing wages sent to the
employer committee; 3) the primary purpose of the employer
committee is to minimize payroll taxes, not to help workers,
who did not create the committee or choose to fund it; and 4)
the employer committees appear to be more focused on trying to
repeal prevailing wage laws, instead of prevailing wage law
compliance.
Proponents argue that this bill would close loopholes in
prevailing wage law by clarifying that contractor payments for
monitoring and enforcing laws related to public works cannot
count as a credit towards a contractor's obligation to pay
prevailing wages, if those payments are not made to a joint
program or committee established under the federal Labor
Management Cooperation Act of 1978. According to proponents,
the federal Labor Management Cooperation Act of 1978 requires
labor and management to cooperatively set up these committees
and run them ensuring that workers and management have a say
in how they operate. Additionally, proponents argue that when
a contractor claims credits that they then don't pay to their
workers who actually earned the benefits, they can underbid
good contractors who not only abide by the law but believe
that construction workers should get the pay and benefit
packages they have earned.
4. Opponent Arguments :
According to opponents of the measure, this bill would
prohibit credit from being granted for employer payments made
to monitor and enforce labor and apprenticeship laws related
to public works, if those payments are not required by a
collective bargaining agreement. They argue that the
underground economy is not a union versus non-union issue and
Hearing Date: April 24, 2013 SB 776
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Senate Committee on Labor and Industrial Relations
neither is violation of the laws on public works projects.
According to opponents, union contractors are required to make
these payments by their agreements, and they can be found in
the published prevailing wages under the "other" column.
Non-union contractors, they argue, receive the same credit
when they voluntarily pay these same moneys to support
independent programs that monitor and enforce public works
labor law compliance.
Opponents assert that this bill is a direct effort to
eliminate independent compliance enforcement by defunding it
and otherwise seeking to limit the operation of such programs.
They argue that independent compliance efforts deserve credit
in the exact same way as the union contractor for the monies
that collective bargaining agreements collect. Additionally,
opponents argue that in many cases, the violations have not
been reported by a joint program supposedly in charge of such
monitoring, but discovered by - and subsequently reported to
the Labor Commissioner's office - an independent compliance
programs for action. Opponents further argue that public
works compliance is made more effective by having as wide a
universe as possible to audit and subsequently report
violations.
Lastly, opponents argue that the real policy goal is to end
underground economy activity and it makes no sense to
terminate independent efforts to find and report labor law
violations.
5. Prior or Related Legislation :
AB 2677 (Swanson) of 2012: Chaptered
AB 2677 provided that an increased employer payment
contribution that results in a lower hourly straight time or
overtime wage is not considered to be a violation of the
applicable prevailing wage determination so long as specified
conditions are met.
SUPPORT
State Building and Construction Trades Council - Sponsor
Hearing Date: April 24, 2013 SB 776
Consultant: Alma Perez Page 7
Senate Committee on Labor and Industrial Relations
California Labor Federation, AFL-CIO
OPPOSITION
Air Conditioning Trade Association
Associated Builders and Contractors of California
California Construction Compliance Group
Plumbing-Heating-Cooling Contractors Association of California
Western Electrical Contractors Association
Hearing Date: April 24, 2013 SB 776
Consultant: Alma Perez Page 8
Senate Committee on Labor and Industrial Relations