BILL ANALYSIS                                                                                                                                                                                                    ”



                                                                  SB 776
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          Date of Hearing:   June 12, 2013

                     ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT
                               Roger HernŠndez, Chair
                    SB 776 (Corbett) - As Amended:  April 15, 2013

           SENATE VOTE  :   24-10
           
          SUBJECT  :   Public works: prevailing wage rates: employer payment  
          credits.

           SUMMARY  :   Establishes additional restrictions on credit granted  
          against the obligation to pay prevailing wages 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 law 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.

          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.

           EXISTING LAW  :

          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 dollars 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.








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          4)Provides 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:

             a)   Health and welfare

             b)   Pension

             c)   Vacation

             d)   Travel

             e)   Subsistence

             f)   Apprenticeship or other training programs, as specified.

             g)   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.

             h)   Industry advancement and collective bargaining  
               agreements administrative fees, provided that they are  
               required under a collective bargaining as specified.

             i)   Other similar purposes.

          5)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.

          6)Specifies that no credit shall be granted for benefits  
            required to be provided by other state and federal law. 

           FISCAL EFFECT  :   According to the Senate Appropriations  
          Committee pursuant to Senate Rule 28.8, negligible state costs.

           COMMENTS  :   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.  The term "prevailing  
          wage" in federal and California law, includes two components - a  








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          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.

          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 ninth 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 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  








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          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, the author contends that 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.

           ARGUMENTS IN SUPPORT  :

          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 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.  

          Supporters 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  








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          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 supporters,  
          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, supporterss 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. 

           ARGUMENTS IN OPPOSITION  :

          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 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.  

          Finally, opponents argue that the real policy goal is to end  








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          underground economy activity and it makes no sense to terminate  
          independent efforts to find and report labor law violations. 

           REGISTERED SUPPORT / OPPOSITION  :

           Support 
           
          California Labor Federation, AFL-CIO
          California State Association of Electrical Workers
          California State Pipe Trades Council
          State Building and Construction Trades Council of California  
          (sponsor) 
          Western States Council of Sheet Metal Workers
           
            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


           Analysis Prepared by  :    Ben Ebbink / L. & E. / (916) 319-2091