BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 776| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: SB 776 Author: Corbett (D) Amended: 4/15/13 Vote: 21 SENATE LABOR & INDUSTRIAL RELATIONS COMMITTEE : 3-1, 4/24/13 AYES: Lieu, Leno, Yee NOES: Wyland NO VOTE RECORDED: Padilla SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8 SUBJECT : Public works: prevailing wage rates: employer payment credits SOURCE : State Building and Construction Trades Council DIGEST : This bill establishes an additional restriction on credit granted for employer payments made to monitor and enforce public works laws. This bill (1) prohibits 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 (Act), and (2) provides 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. CONTINUED SB 776 Page 2 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: 1. 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 and imposes misdemeanor penalties for violation of this requirement. 2. 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. 3. 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. 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: 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 CONTINUED SB 776 Page 3 established under the Act (United States Code Section 175a of Title 29), 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 the above (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 prevailing. Existing law specifies that no credit shall be granted for benefits required to be provided by other state and federal law. This bill establishes an additional restriction on credit granted for employer payments made to monitor and enforce public works laws. Specifically, this bill: 1. Prohibits 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 Act. 2. Provides 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. Prior legislation . AB 2677 (Swanson, Chapter 827, Statutes of 2012) 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. FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: No CONTINUED SB 776 Page 4 SUPPORT : (Verified 5/3/13) State Building and Construction Trades Council (source) California Labor Federation, AFL-CIO California State Association Of Electrical Workers California State Pipe Trades Council Western States Council of Sheet Metal Workers OPPOSITION : (Verified 5/3/13) 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 ARGUMENTS IN SUPPORT : According to the author's office, this bill protects the wages and fringe benefits of workers on public works projects by clarifying the requirements for bona fide fringe benefits. The author's office argues that, increasingly, contractors selected for a prevailing wage project that do not typically provide employee benefits equal to the level required by prevailing 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's office 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 closes 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 CONTINUED SB 776 Page 5 wages, if those payments are not made to a joint program or committee established under the Act. According to proponents, the Act 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 do not 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. ARGUMENTS IN OPPOSITION : According to opponents, this bill prohibits 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 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. CONTINUED SB 776 Page 6 PQ:k 5/6/13 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED