BILL ANALYSIS Ó
AB 326
Page 1
Date of Hearing: January 6, 2016
ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT
Roger Hernández, Chair
AB 326
(Frazier) - As Amended January 4, 2016
SUBJECT: Public works: prevailing wage rates: wage and
penalty assessments
SUMMARY: Amends existing law related to civil wage and penalty
assessments for prevailing wage violations. Specifically, this
bill:
1)Provides that certain funds held in escrow by the Department
of Industrial Relations (DIR) in specified prevailing wage
proceedings shall be released "within 30 days" at the
conclusion of all administrative and judicial review.
2)Makes other technical changes.
EXISTING LAW:
1)Provides that after 60 days following the service of a civil
wage and penalty assessment for prevailing wage violations,
the affected contractor or subcontractor shall be liable for
liquidated damages in an amount equal to the wages, or portion
thereof, that still remain unpaid.
AB 326
Page 2
2)Provides that if the contractor or subcontractor demonstrates
to the satisfaction of the director of DIR that he or she had
substantial grounds for appealing the assessment or notice
with respect to a portion of the unpaid wages covered by the
assessment or notice, the director may exercise his or her
discretion to waive payment of the liquidated damages with
respect to that portion of the unpaid wages.
3)Provides that there shall be no liability for liquidated
damages if the full amount of the assessment or notice,
including penalties, has been deposited with DIR within 60
days following service of the assessment or notice, for DIR to
hold in escrow pending administrative and judicial review.
4)Requires DIR to release such funds, plus any interest earned,
at the conclusion of all administrative and judicial review to
the persons and entities who are found to be entitled to such
funds.
FISCAL EFFECT: None. This bill is keyed non-fiscal by the
Legislative Counsel.
COMMENTS: Under current law, if a wage and penalty assessment
for prevailing wage law violations remains unpaid for a period
of 60 days, the affected contractor or subcontractor is liable
for liquidated damages in an amount equal to the wages that
remain unpaid. The general purpose of this provision is to
encourage prompt payment of wages following an assessment for
violation of the law.
However, current law provides that there shall be no liability
for liquidated damages if the contractor or subcontractor has
deposited the full amount of the assessment (in cash) with DIR
pending administrative and judicial review of the assessment.
AB 326
Page 3
Existing law requires DIR to release the funds, plus any
interest earned, at the conclusion of all administrative and
judicial review to the persons and entities found to be entitled
to those funds.
ARGUMENTS IN SUPPORT
According to the author, although the statute stipulates that
the cash funds deposited by the contractor in order to avoid
liquidated damages shall be released at the conclusion of all
administrative and judicial review, there is nothing in the
statute that states such funds shall be released in an expedited
manner. As a result, releasing such funds can take months before
the contractor is reimbursed. The author states that in one
case, the cash deposit was $93,608.01, and in another it was
$284,873.21. In both cases, these amounts were in addition to
at least the equivalent amount already being withheld by the
awarding bodies from the general contractor's contract balance.
In both cases, the claims against the contractor were dropped
according to counsel. However, according to the author the task
of getting the money back from DIR can take a long period of
time.
This bill is sponsored by the Associated General Contractors who
state:
"It is not unusual to have contractors post significant cash
deposits. An example, in one documented case the contractor's
civil wage and penalty assessment was solely based on the
misconduct of the subcontractor, yet the general contractor
had to post $250,489 in order to avoid liquidated damages.
The cash deposit was held from February to August (six
months), where it was dismissed, and then it took another
AB 326
Page 4
three months to have the funds returned. This bill simply
states that once the case has been decided that the funds
should be returned within 30 days."
PREVIOUS LEGISLATION
AB 1741 (Frazier) from 2014 proposed to amend this same section
of the law to allow the contractor or subcontractor to post the
full amount of the assessment in the form of a bond (in lieu of
cash) in order to avoid liability for liquidated damages.
Supporters of that bill argued that currently contractors are
faced with having to post substantial amounts of cash at a time
when cash flow is important. Unnecessarily tying up cash can
place innocent contractors in jeopardy of losing their business
or creating financial hardship.
The committee analysis of AB 1741 noted the following relevant
legislative and administrative history:
"Legislation enacted in 2001 (AB 1646) established automatic
liquidated damages for wage and penalty assessments that
remain unpaid for a period of 60 days. This was enacted as
part of a broader measure to replace the prior system of de
novo court review of prevailing wage disputes with a formal
administrative procedure, followed by limited judicial review.
However, following the enactment of the automatic liquidated
damages provision, some contractors raised concerns that this
provision placed them in a difficult situation regarding
assessments for which they were filing appeals with DIR. For
example, they argued that contractors and subcontractors who
wish to contest a citation with DIR were faced with two
choices - they pay the disputed wages in order to avoid
possible liquidated damage assessments and try to collect the
AB 326
Page 5
wages from workers if the contractor or subcontractor prevail
at DIR, or, refuse to pay the disputed wages and risk a
liquidated damages assessment if DIR rules against them. They
argued that neither choice affords the contractor or
subcontractor reasonable due process because they are
effectively penalized prior to a determination of guilt.
These concerns led to the enactment of SB 1352 (Wyland) from
2008 which established the provisions of current law that
allow a contractor to avoid liability for liquidated damages
if they post the full amount of the assessment with DIR in an
escrow account while an administrative appeal is pending.
Earlier versions of SB 1352 would have allowed a contractor to
post any of the following with DIR to avoid liability for
liquidated damages: "cash, a letter of credit, a payment bond,
or negotiable securities" in the amount of wages covered by
the assessment. However, that language was subsequently
amended out of the bill and the enacted version of the bill
contained only the current language requiring the full amount
of the assessment to be posted.
Despite the aforementioned legislative history, on March 30,
2009, the Chief Deputy Director of DIR issued a memorandum in
which he stated that, in lieu of a cash deposit, a contractor
may post a payment bond with DIR as long as the bond satisfied
specified criteria. There is some question regarding whether
DIR had the legal authority to do so in light of the fact that
the enabling legislation (SB 1352) had specifically
considered, but then deleted, the ability to submit payment to
DIR in the form of a bond.
In 2013, when DIR revised its' Public Works Manual, it deleted
the prior references to payment to DIR in the form of a bond."
AB 326
Page 6
AB 1741 was held on suspense in the Assembly Appropriations
Committee. There are some indications that the administration
may have had some policy concerns about the proposal to allow
the posting of a bond in lieu of cash. This bill would not
provide for a bond, but would instead merely require DIR to
release such funds within 30 days of a final adjudication.
REGISTERED SUPPORT / OPPOSITION:
Support
Associated General Contractors (sponsor)
California Professional Association of Specialty Contractors
Construction Employers' Association
Opposition
None on file.
Analysis Prepared by:Ben Ebbink / L. & E. / (916) 319-2091
AB 326
Page 7