BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                     AB 326


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          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. 








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          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.










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          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  








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            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  








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            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."









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          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










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