BILL ANALYSIS Ó
SB 588
Page 1
Date of Hearing: July 14, 2015
ASSEMBLY COMMITTEE ON JUDICIARY
Mark Stone, Chair
SB
588 (De León) - As Amended July 1, 2015
SENATE VOTE: 26-13
SUBJECT: nonpayment of wages: Labor Commissioner and judgment
enforcement
KEY ISSUES:
1)should the labor commissioner, on behalf of an aggrieved
employee, be authorized to file a levy against any credits,
MONEY, or other property of an employer in order to collect a
judgment for unpaid wages?
2)If an employer fails to satisfy a judgment within 20 days of
receiving a notice of levy, should that employer be required
to cease business operations or obtain a surety bond of
$150,000?
3)Should a business that contracts for certain "Property
services" be jointly and severally liable for the wage
violations of the service contractor, so long as the business
was named and noticed in the underlying compLaint?
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SYNOPSIS
According to a 2010 study conducted jointly by the UCLA Labor
Center and the National Employment Law Project, only 17% of
workers who successfully filed a wage claim with the California
Division of Labor Standards recovered any payment. SB 588 is
one of several recent bills that have sought to deal with the
problem of collecting unpaid wages, even where a court has found
a violation and the employee has won a judgment against an
employer. Most recently AB 1164 (Lowenthal, 2013) and AB 2416
(Stone, 2014) attempted to grapple with this problem by allowing
an employee to file a "pre-judgment" lien against the real and
personal property of an offending employer. Neither bill made
it to the Governor's desk. The bill under review differs from
those bills in two significant ways. First, this bill
authorizes not a lien against real property, but a levy against
the employer's credit, money, or related property (other than
real property). A lien is authorized only where the employer
fails to satisfy a judgment after notice of judgment and
continues to operate without complying with a specified bond
requirement. Second, and perhaps most significantly, this bill
does not authorize a pre-judgment lien; rather, it authorizes
the levy or lien to be filed only where a judgment has already
been rendered against the employer. Although a coalition of
business and employer groups, led by the Chamber of Commerce,
opposed the prior bills, the same coalition has submitted only a
letter of "concern" regarding this bill. When the bill recently
passed out the Assembly Labor & Employment Committee, the author
and the Chamber of Commerce indicated a willingness to work on
the remaining issues. However, no agreement had been reached at
the time of the writing of this analysis. The analysis
discusses the three issues on which the coalition and author
still disagree; however, amendments, if any, would occur in the
Appropriations Committee, or on the Floor, if the bill passes
out of this Committee.
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SUMMARY: Authorizes the California Labor Commissioner
(Commissioner) to file a levy, and in some cases, a lien on an
employer's property in order to assist an employee in enforcing
a judgment for unpaid wages. Specifically, this bill:
1)Allows the Commissioner, after a judgment for unpaid wages is
entered by a court in favor of the Commissioner or employee,
to mail a notice of levy to all persons who possess or control
any credits, money, or property belonging to the employer.
Requires any person upon whom a levy has been noticed to
surrender the credits, money, or property to the Commissioner,
or pay to the Commissioner the amount owed, within ten days of
service.
2)Provides that a person who complies with the notice of levy
shall be discharged from any obligation or liability to the
employer. Any person who fails or refuses to surrender any
credits, money, or property, or pay any debts owed, shall be
liable to the Commissioner in an amount equal to the levy.
3)Exempts real property from the provisions above.
4)Provides, subject to exceptions, that if a final judgment
against an employer for unpaid wages remains unsatisfied for
20 days after the time to appeal the judgment has expired and
no appeal is pending, then the employer must cease business
operations unless the employer has obtained a surety bond of
$150,000. The bond must be filed with the Commissioner and
paid to the people of the State of California for the benefit
of the aggrieved employee.
5)Subjects any employer, or person acting on behalf of an
employer, that violates the bond requirement to a civil
penalty, as specified, and a "stop order" prohibiting the
conduct of business until the employer complies with the bond
requirements.
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6)Authorizes the Commissioner, in the event that the employer
fails to comply with the bond provision, to impose a lien on
the employer's real and personal property for the full amount
of wages, interest, penalties, and attorney's fees, to the
extent allowed under law. Unless it is satisfied or released,
the lien remains in place for ten years from the date of its
creation.
7)Prohibits the State Department of Public Health or the State
Department of Social Services from renewing the license of an
employer in the long-term care industry, as defined, if the
employer is conducting business in violation of the surety
bond requirement.
8)Provides that an individual or business that contracts with an
employer to perform property services or long-term care
services shall be jointly and severally liable with the
employer for unpaid wages if the business was named as a
defendant in, and received notice of, the underlying
complaint.
9)Requires property services and long-term care contractors to
provide notice to the other party to the contract as to any
outstanding wage violations or unsatisfied judgments, but also
states that the failure by the employer to provide such
notices shall not be a defense to the joint and several
liability.
10)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)Gives mechanics, persons furnishing materials, artisans, and
laborers of every class the right to file a lien against the
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property upon which they have bestowed labor or furnished
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 labor, services, and
supplies provided to a work of improvement and regulates the
conditions under which a mechanics lien may be enforced.
(Civil Code Sections 8400-8494.)
3)Recognizes prejudgment wage liens against property as a remedy
in certain industries, including mining (Civil Code Section
3060), agriculture (Civil Code Sections 3061.5-3061.6), and
logging (Civil Code Section 3065).
4)Authorizes the 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 Section 96.7.)
5)Authorizes the Commissioner to investigate employee complaints
and provide for a hearing in any action to recover wages,
penalties, and other demands for compensation, and requires
the Commission to determine all matters arising under his or
her jurisdiction. (Labor Code Section 98.)
6)Authorizes the Commissioner, at its 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 Section 98.2(g).)
7)Provides that, if any employer or other person acting on
behalf of an employer violates, or causes to be violated, any
provision regulating hours and days of work in either statute
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or regulation shall be subject to a civil penalty. (Labor
Code Section 558.)
FISCAL EFFECT: As currently in print this bill is keyed fiscal.
COMMENTS: Recent studies have highlighted the problem of unpaid
wages in California and elsewhere. For example, a 2009 Ford
Foundation study on workers in low-wage industries in Chicago,
Los Angeles and New York City found that 26 percent of workers
in the sample were paid less than the legally required minimum
wage, and 60 percent 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. Another
survey of 1,815 workers in Los Angeles County found that
low-wage workers regularly experience violations of minimum wage
and overtime pay requirements. (Center for Urban Economic
Development, National Employment Law Project, UCLA Institute for
Research on Labor and Employment Broken Laws, Unprotected
Workers: Violations of Employment and Labor Laws in America's
Cities (2009); 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 Problem of Collecting Unpaid Wages. While the number of
violations is bad enough, the statistics on the inability of
workers to recover wages - even when a court or the Labor
Commission issues a judgment in their favor - are staggering.
Under existing law, when an employer fails to pay wages that are
due, the employee has the right to file a claim against the
employer with the Department of Labor Standards Enforcement
(DLSE), which is directed by the State Labor Commissioner
(Commissioner). After conducting an investigation, the
Commissioner typically holds an administrative hearing and
renders a decision. If either party is unhappy with the
Commissioner's decision, it can bring an appeal in civil court.
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However, even where a worker wins a favorable decision, the
process of collecting the award is often difficult and
ineffective. Irresponsible employers may have hidden their cash
assets, declared bankruptcy, or otherwise become judgment-proof.
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.
Comparison with Prior Bills. SB 588 seeks to address the
problem of unpaid wages by giving the Commissioner expanded
power to file a levy or lien against the property of an
employer. It is the latest in a series of recent bills that
have sought to deal with the problem of collecting unpaid wages
from employers after a court has found a violation and the
employee has won a judgment against the employer. Most recently
AB 1164 (Lowenthal, 2013) and AB 2416 (Stone, 2014) attempted to
grapple with this problem by allowing an employee to file a
"pre-judgment" lien against the real and personal property of
the offending employer. Both of these bills faced considerable
opposition from business and employer groups. AB 1164 died on
the Assembly Floor; AB 2416 passed out of the Assembly only to
die on the Senate Floor. The bill under review differs in three
important ways from those prior bills. First, this bill
authorizes not a lien against real property, but a levy against
the employer's credit, money, or related property that is not
real property. Under this bill, a lien against real property is
authorized only where the employer fails to satisfy a judgment
after notice of judgment and continues to operate without
complying with the bond requirement, as described below.
Second, this bill authorizes the Commissioner to file a levy or
lien on the employee's behalf; unlike the earlier bills, this
bill does not allow an employee to directly file a lien against
an employer's property. Third, and perhaps most significantly,
this bill does not authorize a pre-judgment lien; rather, it
authorized the levy or lien to be filed only where a judgment
has already been rendered against the employer.
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Changes to Existing Law. California's "mechanic's lien" law -
as required by the California Constitution - gives mechanics,
artisans, suppliers, and "laborers of every class" a lien
against any property "upon which they bestowed labor or
furnished material for the value of such labor done and material
furnished." (California Constitution Article XIV, Section;
enacted and enforced by Civil Code Sections 8400-8494.) Because
the labor or materials of a worker are bestowed upon a
"property," this provision has generally been construed to apply
to works of improvement. For example, a worker who installs
windows on a new building has a lien for the value of his or her
labor against the building property. If that worker is not paid
for her labor, she can try to collect by recording a lien
against the property. However, an employee who merely works in
an office, factory, or department store has no ability to file
such a lien against the employer's property if the employer
fails to pay proper wages. That worker would most likely file a
claim for unpaid wages with the Commissioner and hope to win a
judgment against the employer. Upon receiving a claim from an
employee, the Commissioner has the authority to investigate the
claim, conduct a hearing, and, if it determines that wages or
other monetary benefits are due, collect wages or benefits on
behalf of the worker. Finally, under existing law, the
Commissioner may, upon issuing a final order, place a lien on
the employer's real property for the amount of unpaid wages that
are due.
Bill Expands Labor Commission's Existing Authority. This bill
would expand the Commissioner's existing authority to collect
unpaid wages in two important ways:
First, while the Commissioner could still record a lien against
the real property of an employer who did not satisfy a final
order, this bill would give the Commissioner the additional
authority to collect a court judgment in favor of the
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Commissioner or any employee by mailing a "notice of levy" to
all persons in possession of credits, money, or other property
(other than real property) belonging to the employer. A levy is
similar to, but not the same as, a lien. A lien is a recorded
interest or encumbrance on real property, which can be collected
upon sale of the property. A levy, on the other hand, is simply
a legal means to seize the money or assets of a judgment debtor.
It can be directed, for example, to a bank or other party in
possession of the debtor's money or assets. Under this bill, if
a person in possession of the debtor's money fails to surrender
the money, that person is liable to the Commissioner for the
amount of the levy. If the person in possession surrenders the
money, that person is discharged from any obligation or
liability to the employer.
Second, where a final judgment against an employer remains
unsatisfied for 20 days after the time for an appeal has expired
(and no appeal is pending), this bill would prohibit the
employer from conducting business in this state unless the
employer obtains a surety bond in the amount of $150,000. The
bond must be filed with the Commissioner and paid to the state
for the benefit of the employee who is denied his or her just
wages. If the employer fails to comply with the bond
requirement, this bill would give the Commissioner the authority
to serve upon that employer a "stop order," prohibiting the
employer from using any employee labor or continuing to operate
by subcontracting for labor. (In theory, the employer could
continue to operate the business if he did the work himself, but
as a practical matter the stop order is an order to cease
operations until judgments are paid or appropriate bonds
acquired.) An employer, or any officer or manager of the
employer having effective control of the operation, who
continues to operate the business in the face of the stop order,
commits a misdemeanor punishable by imprisonment in county jail
for not more than 60 days or by fine not exceeding $10,000, or
both. The Commissioner may also record a lien against the real
property of any employer who violates the bond requirement.
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Potential Liability of Supervisors and Managers. In addition to
expanding the authority of the Commissioner to file levies and
enforce the new bond requirement, this bill also expands
existing law in other ways. Under existing law, the
Commissioner may issue citations and impose fines for violating
wage laws against the employer or any "other person acting on
behalf of an employer who violates or causes to be violated" the
wage law provisions. This bill, however, appears to use more
expansive language by allowing the Commissioner to conduct
hearings concerning wage violations against any employer "or
other person acting on the employer's behalf." One of the
concerns expressed by the Chamber of Commerce is that this new
language omits the critical words "who violates or causes to be
violated." In other words, the Chamber contends, this new
language could subject a manager, or even a relatively low-level
employee, to penalties whether or not the manager or employee
had sufficient control to commit or prevent a violation. (The
Chamber's proposed resolution to this issue is discussed below.)
Joint and Several Liability of Contracting Parties. This bill
also appears to expand existing law by imposing joint and
several liability for wage violations on any business that
contracts with an offending employer to perform "property
services" or "long-term care services," but only where the
business was named as a defendant and received notice pursuant
to a complaint filed with the Commissioner. ("Property
services" is defined to mean janitorial, security guard, valet
parking, landscaping and gardening services; "long-term care
services" is defined to mean a skilled nursing facility, adult
residential facility, and residential care facility for the
elderly and related facilities.) The bill requires an employer
who contracts to provide those services to inform the other
party to the contract of any pending claims or unsatisfied
judgments for non-payment of wages. However, the bill also adds
that an employer's failure to provide that information to the
other party will not be a defense to the joint and several
liability created by this bill. The Chamber of Commerce and its
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coalition express serious concerns about this provision,
contending that it unfairly makes a business liable for
violations committed by other employers over whom they may have
little or no control. However, the rationale for this
provision, according to the author, is that a business that uses
such services has some obligation to take reasonable steps to
ensure that the company with which it contracts does not exploit
or cheat its workers. As noted below, this provision continues
to be a considerable source of disagreement between the author
and the concerned business coalition.
Remaining Concerns among Business Groups. A coalition of
business and employer associations, led by the California
Chamber of Commerce, expresses "concerns" that certain
provisions of this bill will negatively impact employers.
First, the coalition argues that the joint and several liability
provisions are unfair because a business should not be penalized
for the actions of a company with which it happened to contract
but, through no fault or control or the contracting party,
failed to pay the wages owed to its workers. Second, the
coalition argues that this bill could improperly impose personal
liability on lower-level supervisors and managers for wage and
hour violations they did not commit and could not have
prevented. Finally, the coalition argues that the amount of the
proposed bond needs to be adjusted to encourage payment of the
underlying judgment. The coalition suggests that the amount of
the bond should be left to the discretion of the Commissioner,
allowing the Commissioner to take into account the "totality of
circumstances" in setting a proper and reasonable bond amount.
To address these issues, the concerned business and employer
coalition has proposed, conceptually at least, three possible
amendments that might address their concerns:
In place of the fixed bond amount of $150,000, the Chamber of
Commerce proposes either (1) a tiered bond amount based on the
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"totality of circumstances" or (2) giving the Labor
Commissioner the discretion to determine an appropriate bond
amount, up to $150,000.
In order to ensure that the bill does not improperly impose
liability on managers or employees because of the employers'
violation, the Chamber of Commerce proposes adding language
that tracks the general rule of existing case law that a
manager or other employee may only be liable for a violation
if the manager or employee had sufficient control to cause the
violation. Therefore, the Chamber of Commerce proposes adding
the following qualifying language (or something like it):
Liability under this section shall not apply if the person was
acting solely within the scope of their agency with the
employer and lacked any personal or direct control over the
working conditions or payment of wages to the employee.
Modify the joint and several liability provisions so that a
business that contracts with an employer who violates wage
laws has an "opportunity to cure" the violation. Under this
bill, a business would only be jointly and severally liable
for the employer's violations if the business were named as a
defendant and given notice at the time that a complaint was
filed with the Labor Commission. It is not entirely clear to
the Committee what the "opportunity to cure" would consist of,
given that the business would only receive notice after the
complaint had been filed and thus a violation has already
committed. The businesses ability to cure would seem to be
limited to its ability to force the employer with whom it
contracts to satisfy the unpaid wages or face termination of
the contract. This may be an issue that the author and
opponents are unlikely to resolve.
The Committee may wish to explore with the author his
willingness to address all or some of these concerns should the
bill pass out of this Committee today.
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ARGUMENTS IN SUPPORT: Supporters, noting the various wage theft
studies, argue that wage theft is a significant problem in
California, with LA County's wage theft resulting in over $1
billion failing to reach the workers who desperately need and
are lawfully entitled to those wages. 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 argue that SB 558 "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."
Finally supporters contend that this bill will target "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."
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REGISTERED SUPPORT / OPPOSITION:
Support
Koreatown Immigrant Workers Alliance (co-sponsor)
SEIU- CA (co-sponsor)
Wage Justice Center (co-sponsor)
9to5
Alliance of Californians for Community Empowerment
Alliance San Diego
Asian Americans Advancing Justice- Los Angeles
Bet Tzedek Legal Services
California Employment Lawyers Association
California Immigrant Policy Center
California Labor Federation, AFL-CIO
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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
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.
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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
Filipino Migrant Center
Fresno County Democrats
Garment Worker Center
Gender Justice LA
Graton Day Labor Center
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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
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
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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
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
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of Dolores Street
San Francisco Progressive Workers Alliance
Santa Clara University
SoCalCosh, Southern California Coalition for Occupational Safety
and Health
Social Justice Learning Institute
Street Level Health Project
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
Workplace Justice Initiative
Worksafe, Inc.
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Opposition
None on file
Analysis Prepared by:Thomas Clark / JUD. / (916)
319-2334