BILL ANALYSIS Ó SB 588 Page 1 Date of Hearing: July 8, 2015 ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT Roger Hernández, Chair SB 588 (De León) - As Amended July 1, 2015 SENATE VOTE: 26-13 SUBJECT: Employment: nonpayment of wages: Labor Commissioner: judgment enforcement. SUMMARY: Authorizes the Labor Commissioner to file a lien or levy on an employer's property in order to assist an employee in collecting unpaid wages where there is a judgment against the employer, and contains related provisions. Specifically, this bill: 1) Allows the Labor Commissioner, beginning 20 days after a judgment is entered by a court of competent jurisdiction in favor of the Labor Commissioner or in favor of any employee, to collect any outstanding amount of the judgment by mailing a notice of levy upon all persons having in their possession, or who will have in their possession or under their control, any credits, money, or property belonging to the judgment debtor, or who owe any debt to the judgment debtor at the time they receive the notice of levy. This can only be done with the consent of the aggrieved worker. 2) Provides that, any person, upon whom a levy has been SB 588 Page 2 noticed for either possessing or owing credits, money, or property belonging to the judgment, shall surrender the credits, money, or property to the commissioner or pay to the commissioner the amount of any debt owing the judgment debtor within ten days of service of the levy. This includes property, money or credits coming into the person's possession within one year of receipt of the notice of levy. 3) Provides that any person who complies with the notice of Levy from the Labor Commissioner shall be discharged from any obligation or liability to the judgment debtor to the extent of the amount paid to the commissioner. 4) Provides that any person who fails or refuses to surrender any credits, money, or property or pay any debts owing to the judgment debtor shall be liable in his or her own person or estate to the commissioner in an amount equal to the levy. 5) Provides a process for filing a levy with a bank or other financial institution, as defined under federal law. 6) Limits the above-discussed provisions to property that is not real property. 7) Requires that, if a final judgment against an employer arising from the employer's nonpayment of wages for work performed in this state remains unsatisfied after a period of 20 days after the time to appeal therefrom has expired, the employer must cease business operations unless the employer has obtained a surety bond of $150,000. The bond must be filed with the Labor Commissioner and be payable to the people of the State of California for the benefit of any employee damaged by his or her employer's failure to pay wages, including any interest, penalties, and attorney's fees. 8) Allows the employer to provide the Labor Commissioner with a notarized copy of an accord reached with an individual SB 588 Page 3 holding an unsatisfied final judgment instead of filing a surety bond described above. However, if the accord provides for the judgment to be paid in installments, and an installment payment is not made, the employer is no longer excused from satisfying the bond requirements. 9) Provides that a subsequent employer similar in operation and ownership to an employer with an unsatisfied final judgment for unpaid wages shall be deemed the same employer for purposes of this section if: a) The employees of the subsequent employer are engaged in substantially the same work in substantially the same working conditions under substantially the same supervisors; or b) If the new entity has substantially the same production process or operations, produces substantially the same products or offers substantially the same services, and has substantially the same body of customers. 1) Requires that any employer, or other person acting on behalf of an employer, that conducts business in violation of this section shall be subject to a civil penalty of $2,500 and that any employer that has previously paid a fine pursuant to this section shall be subject to an additional fine of one hundred dollars ($100) for each calendar day that the employer conducts business in violation of this section, capped at $100,000. 2) Exempts employers from the requirements of the bond if they employ workers who are covered by a bona fide collective bargaining agreement that expressly provides for wages, hours of work, working conditions, includes a process to resolve disputes concerning nonpayment of wages, and contains a waiver of the bond. 3) Provides notice requirements to the Labor Commissioner in SB 588 Page 4 the event of the surety bond being cancelled or terminated. 4) Provides the following in the event of an employer failing to comply with the bond provisions listed above: a) A stop order prohibiting the use of employee labor by that employer or use of subcontracted labor until the employer complies with bonding requirements. The stop order must become effective immediately, and the employer must pay any worker for their lost time due to the stop order, not exceeding ten days. b) A lien on the real property and personal property of an employer that for the full amount of any wages, interest, penalties, and attorney's fees (to the extent specifically allowed to be recovered under existing law) claimed to be owed to any employee. This lien would be filed by the Labor Commissioner. Unless the lien is satisfied or released, the lien must continue until ten years from the date of its creation. 5) Creates notice and filing requirements for the lien provisions discussed above, as well as give the Labor Commissioner the ability to foreclose on the property. 15) Prohibits the State Department of Public Health or the State Department of Social Services from allowing a long-term care industry employer from obtaining or renewing a license if the employer is conducting business in violation of the surety bond requirement. This bill defines a long-term care industry as a skilled nursing facility, intermediate care facility, congregate living facility, hospice facility, adult residential facility, residential care facility for persons with chronic life-threatening illness, residential care facility for the elderly, continuing care retirement community, home health agency, or home care organization. SB 588 Page 5 16) Holds an individual, partnership, corporation, limited liability company, joint venture, or association jointly and severally liable for liens for unpaid wages against real property if the entity provides janitorial, security guard, valet parking, landscaping, gardening services, and long-term care and has been named a defendant and to the extent that the amounts are for services performed under that contract. 17) Creates a notice requirement for contractors of janitorial, security guard, valet parking, landscaping, gardening services, and long-term care if there are outstanding wage violations for prospective contracts, but also states that the failure by employer to provide such notices shall not be a defense to the joint and several liability as described above. 18) Allows for the Labor Commissioner to hear complaints against a person acting on behalf of an employer who violates, or causes to be violated, any provision regulating hours and days of work in either statute or regulation, and would also make a person acting on behalf of an employer liable for willfully failing to pay wages, provide a paystub, unpaid minimum wages or overtime, and failing to indemnifying an employee. 19) Creates enforcement provisions for liens and levies discussed above within the Code of Civil Procedure. These provisions would bestow jurisdiction on the superior court and detail the service and hearing requirements for levies and liens filed by the Labor Commissioner. EXISTING LAW: 1)Provides mechanics, persons furnishing materials, artisans, and laborers of every class the right to file a lien upon the property upon which they have bestowed labor or furnished SB 588 Page 6 material for the value of such labor and material. Existing law also requires the Legislature to provide, by law, for the speedy and efficient enforcement of such liens. (California Constitution Article XIV, Section 3) 2)Provides for mechanics liens relating to services and supplies authorized and provided on a work of improvement. Existing law also regulates the conditions under which a mechanics lien may be enforced. (Civil Code §§ 8400-8494) 3)Recognizes prejudgment wage liens against property as a remedy in certain industries, including mining (Civil Code § 3060), agriculture (Civil Code §§ 3061.5-3061.6), and logging (Civil Code § 3065). 4)Requires the Labor Commissioner and his or her deputies and representatives authorized by him or her in writing, upon the filing of a claim therefor by an employee, or an employee representative authorized in writing by an employee, with the Labor Commissioner, to take assignments of, among other things, wage claims and incidental expense accounts and advances and mechanics and other liens of employees. (Labor Code § 96) 5)Authorizes the Labor Commissioner, after investigation and upon determination that wages or monetary benefits are due and unpaid to any worker in the State of California, to collect such wages or benefits on behalf of the worker without assignment of such wages or benefits to the Commissioner. (Labor Code § 96.7) 6)Authorizes the Labor Commissioner to investigate employee complaints and provide for a hearing in any action to recover wages, penalties, and other demands for compensation, including liquidated damages if the complaint alleges payment of a wage less than the minimum wage fixed by an order of the Industrial Welfare Commission or by statute, properly before the division or the Labor Commissioner, including orders of the Industrial Welfare Commission, and is required to SB 588 Page 7 determine all matters arising under his or her jurisdiction. (Labor Code § 98) 7)Authorizes the Labor Commissioner, at the Commissioner's discretion and upon a final order, to place a lien on real property for amounts due under the final order and in favor of the employee or employees named in the order, with the county recorder of any county in which the employer's real property may be located. (Labor Code § 98.2(g)) 8)Provides that, if any employer or other person acting on behalf of an employer who violates, or causes to be violated, any provision regulating hours and days of work in either statute or regulation shall be subject to a civil penalty. (Labor Code § 558) FISCAL EFFECT: According to the Senate Appropriations Committee, the Department of Industrial Relations (DIR) indicates that it would incur first year costs of $2.6 million (special fund) to implement the provisions of the bill, with ongoing costs totaling $2.2 million. DIR also notes unknown, potentially significant court costs associated with additional proceedings regarding wage claims. COMMENTS: The Problem of "Wage Theft" Various recent studies have highlighted concerns about alleged widespread "theft of wages" in the United States and in California, particularly in the underground economy. For example, in 2009 the Ford Foundation sponsored a study that surveyed 4,387 workers in low-wage industries in the three largest U.S. cities - Chicago, Los Angeles and New York City. The study revealed that 26 percent of workers in the sample were paid less than the legally required minimum wage, and 60 percent SB 588 Page 8 of these workers were underpaid by more than $1 per hour. In addition, 76 percent of the respondents who worked overtime in the previous week were not paid the legally required overtime rate by their employers. (Broken Laws, Unprotected Workers: Violations of Employment and Labor Laws in America's Cities, Center for Urban Economic Development, National Employment Law Project, UCLA Institute for Research on Labor and Employment (2009).) Another study focused on a survey of 1,815 workers in Los Angeles County. The survey found that low-wage workers in Los Angeles regularly experience violations of basic laws that mandate a minimum wage and overtime pay and are frequently forced to work off the clock or during their breaks. Other violations documented in the survey include lack of required payroll documentation, late payments, stealing tips, and employer retaliation. (Milkman, Gonzalez and Narro, Wage Theft and Workplace Violation in Los Angeles: The Failure of Employment and Labor Law for Low-Wage Workers, UCLA Institute for Research on Labor and Employment (2010).) The survey also revealed that the various forms of nonpayment and underpayment of wages take a heavy monetary toll on workers and their families. Respondents who experienced a pay-based violation in the previous work week lost an average of $39.81 out of average weekly earnings of $318.00 (or 12.5 percent). Assuming a full-year work schedule, these workers lost an average of $2,070.00 annually out of total earnings of $16,536.00. The survey estimated that, in a given week, 654,914 workers in Los Angeles County suffer at least one pay-based violation. Extrapolating from this figure, front-line workers in low-wage industries lose more than $26.2 million per week as a result of employment and labor law violations. Effectiveness of Existing Methods of Recovering Unpaid Wages Under existing law, when an employer fails to pay wages due, the SB 588 Page 9 employee has the right to file a claim against his or her employer (or former employer) with the Department of Labor Standards Enforcement (DLSE), which is directed by the State Labor Commissioner. The Labor Commissioner has jurisdiction over most private sector employees, except those that are bona fide independent contractors. In some cases, according to case law, the Commissioner does not have jurisdiction over those working under collective bargaining agreements. Existing law requires an employee who feels that his or her wages have been wrongly withheld must go through DLSE and according to statutorily prescribed procedures. (Labor Code Section 98 et seq.) After conducting an investigation, the Labor Commissioner may hold an administrative conference or hearing, or both. If a party is unhappy with the Commissioner's decision, it can appeal to the appropriate civil court. (Labor Code Section 98.2.) However, even where a worker wins a favorable decision, the process of collecting the award is often difficult and ineffective. Irresponsible employers may have already hidden their cash assets, declared bankruptcy, or otherwise become judgment-proof. Equally troubling, if not more troubling, than the high rate of wage theft in California is the low rate of collections. According to a 2013 report published by the National Employment Law Project (NELP) and the UCLA Labor Center, only 17% of workers who prevailed in their wage claim before the DLSE and won a judgment were able to receive any payment between 2008 and 2011. Of those who did receive payment between 2008 and 2011, workers were able to collect 15% of what was owed. In short, the vast majority of wage theft victims received nothing, and those that received anything received little of what they were legally due. ARGUMENTS IN SUPPORT SB 588 Page 10 Supporters, noting the 2010 wage theft study discussed earlier, argue that wage theft is a significant problem in California, with LA County's wage theft resulting in over $1 billion unlawfully failing to reach the workers who desperately need it. Supporters also note that current wage theft collection rates are less than 20%, meaning the vast majority of scofflaw employers are successful in robbing their workers of their lawful wages. Supporters believe that this bill will help combat the high rate of wage theft in California by creating a simple lien process for the Labor Commissioner to use against employers who rob workers of their wages. Supporters, noting Wisconsin's success, argue that wage liens are simple, effective, and a time tested approach to halting wage theft. This bill is co-sponsored by the Service Employees International Union, the Koreatown Immigrant Workers Alliance, and the Wage Justice Center. They write: "[This bill] gives the Labor Commissioner additional tools to collect from employers who have exhausted all appeals for their non-payment of wages and have final judgments owed. It requires a business that has an outstanding unpaid judgment against them to purchase a wage bond of $150,000. If it fails to do that, the employer can be subject to a stop work order and a lien at the Labor Commissioner's discretion. This bill also gives the Labor Commissioner the authority to hold individual business owners accountable for their debts to workers. This will discourage business owners from rolling up their operations and walking away from their debts to workers and starting a new company. SB 588 Page 11 In addition, [this bill] targets two high-risk sectors - property services and long-term care - by establishing procedures to ensure parties are held individually responsible to ensure that employers can't evade the law through contracting and subcontracting arrangements." "CONCERNS" A number of groups, including the California Chamber of Commerce, express "concerns" that certain provisions of this bill will negatively impact employers who do not operate in the underground economy. First, they express concern that this bill imposes joint and several liability on employers for "property services" contracts and state that an employer should not be forced to cover the liabilities of another company that the employer had no reasonable opportunity or ability to prevent. Second, they argue that this bill improperly imposes personal liability on lower-level supervisors and managers of a company for wage and hour violations the employer could not prevent. Finally, they argue that the amount of the proposed bond needs to be adjusted to encourage payment of the underlying judgment. They suggest the amount of the bond should be left to the discretion of the Labor Commissioner to take into account the totality of circumstances in order to achieve the necessary balance. PRIOR RELATED LEGISLATION: SB 588 Page 12 AB 2416 (Stone) of 2014 would have allowed an employee request that the Labor Commissioner file a pre-judgment lien on an employer's real, personal property, or on the real property where a contracted employee conducted work, in order to assist the employee in collecting unpaid wages. AB 2416 failed passage on the Senate Floor. AB 2416 was similar, but not identical to, AB 1164 (Lowenthal) from 2013. AB 1164 was moved to the inactive file on the Assembly floor and was not taken up for a vote. AB 2416 was also similar, but not identical to, the introduced version of AB 2517 (Eng) from 2012. AB 2517 was subsequently amended to provide for wage liens only in the car wash and polishing industry. AB 2517 failed passage on the Assembly floor. REGISTERED SUPPORT / OPPOSITION: Support 9to5 Alliance of Californians for Community Empowerment Alliance San Diego SB 588 Page 13 Asian Americans Advancing Justice- Los Angeles Bet Tzedek Legal Services California Employment Lawyers Association California Immigrant Policy Center California Labor Federation, AFL-CIO California Professional Firefighters California Rural Legal Assistance California School Employees Association Center on Policy Initiatives Central American Resource Center Centro Legal de la Raza Chinese Progressive Association CHIRLA-Coalition for Humane Immigrant Rights of Los Angeles SB 588 Page 14 CLEAN Car Wash Campaign Clergy and Laity United for Economic Justice Coalition For A Safe Environment Coalition to Abolish Slavery & Trafficking Community Action Board of Santa Cruz County Inc. Community Services Day Labor Center Hayward/ Oakland Day Worker Center of Mountain View Dignity Campaign Dolores Street Community Services Employment Rights Center Equal Rights Advocates Filipino Advocates for Justice SB 588 Page 15 Filipino Migrant Center Fresno County Democrats Garment Worker Center Gender Justice LA Graton Day Labor Center Holman United Methodist Church Housing Long Beach Human Impact Partners InnerCity Struggle Instituto de Educacion Popular del Sur de California Katharine & George Alexander Community Law Center Khmer Girls in Action Koreatown Immigrant Workers Alliance (co-sponsor) SB 588 Page 16 LA Black Worker Center La Colectiva De Mujeres Liberty Hill Foundation Los Angeles Alliance for a New Economy Los Angeles Fight for $15 Organizing Committee Maintenance Cooperation Trust Fund Making Change at Walmart Mi Familia Vota National Association of Working Women National Day Laborer Organizing Network National Employment Law Project One LA-IAF Pacoima Beautiful SB 588 Page 17 Pilgrim United Church of Christ Pilipino Association of Workers and Immigrants - Silicon Valley Restaurant Opportunities Center of Los Angeles Sacramento Area Congregations Together San Diego and Imperial Counties Labor Council, AFL-CIO San Francisco Day Labor Program & Women's Collective, a program of Dolores Street San Francisco Progressive Workers Alliance Santa Clara University SEIU- CA (co-sponsor) SoCalCosh, Southern California Coalition for Occupational Safety and Health Social Justice Learning Institute Street Level Health Project SB 588 Page 18 T.R.U.S.T. South LA The Institute of Popular Education of Southern California The Wage Justice Center UCLA Labor Center Union de Vecinos Wage Justice Center (co-sponsor) Workplace Justice Initiative Worksafe, Inc. Opposition None on file. Analysis Prepared by:Ben Ebbink / L. & E. / (916) 319-2091 SB 588 Page 19