BILL ANALYSIS Ó SB 954 Page 1 Date of Hearing: June 22, 2016 ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT Roger Hernández, Chair SB 954 (Hertzberg) - As Amended June 14, 2016 SENATE VOTE: 27-12 SUBJECT: Public works: prevailing wage: per diem wages SUMMARY: Qualifies which employer payments may be included as per diem wages for purposes of an employer's obligation to pay prevailing wages on public works projects. Specifically, this bill: 1)Provides that those per diem wages may include employer payments for industry advancement and collective bargaining agreement administrative fees only if such payments are made pursuant to a collective bargaining agreement to which the employer is obligated. 2)Provides that those per diem wages may include employer payments for "other purposes similar" to certain apprenticeship or other training programs, worker protection and assistance programs or committees established under the federal Labor Management Cooperation Act of 1978, and industry advancement and collective bargaining agreements administrative fees, only if such payments are made pursuant SB 954 Page 2 to a collective bargaining agreement to which the employer is obligated. 3)Prevents the use of employer payments for industry advancement and collective bargaining agreement administrative fees from being used as a credit against the obligation to pay prevailing wages if those payments are not made pursuant to a collective bargaining agreement to which the employer is obligated. EXISTING LAW: 1)Requires that the applicable general prevailing rate of per diem wages be paid to workers employed on public works projects in California. This rate is determined by the Director of the Department of Industrial Relations for each locality in which the public work is to be performed and for each craft, classification, or type of worker needed to execute the public works project (Labor Code §1773). 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 (Labor Code §1720). 3)Requires that employers pay the general prevailing rate of per diem wages to all workers employed on a public works project costing over $1,000 (Labor Code §1771). 4)Allows employers, in addition to paying these workers basic SB 954 Page 3 straight-time and overtime pay, to use payments to the following as a credit against the obligation to pay the general prevailing rate of per diem wages (Labor Code §1773.1): a) Health and welfare b) Pension c) Vacation d) Travel e) Subsistence f) Apprenticeship or other training programs, as specified, to the extent that the cost of training is reasonably related to the amount of contributions. g) Worker protection and assistance programs or committees established under the federal Labor Management Cooperation Act of 1978, to the extent that the activities of the programs or committees are directed to the monitoring and enforcement of laws related to public works. h) Industry advancement and collective bargaining agreement administrative fees, provided that these payments are required under a collective bargaining agreement pertaining to the particular craft, classification, or type of work within the locality or the nearest labor market area at issue. i) Other purposes similar to those specified in paragraphs (a) to (h), inclusive. SB 954 Page 4 FISCAL EFFECT: According to the Senate Appropriations Committee, pursuant to Senate Rule 28.8, negligible state costs. COMMENTS: According to the author, the current broad definition of these "employer payments" allows non-union employees who are not party to a collective bargaining agreement to have their per diem wage rates include employer payments used for industry advancement purposes. As such, employers can credit these payments towards their prevailing wage obligation without the input or consent of the employees or their labor representatives. In addition, the law's uncertainty regarding benefits is compounded by the inclusion of employer payments for other purposes similar to industry advancement as part of the prevailing wage. The prevailing wage is derived from the basic hourly rate paid on public works projects to a majority of workers engaged in a particular type of work within the locality and in the nearest labor market area. Proponents of prevailing wage laws contend that this ensures, among other things, that government funds do not become tangled up in competitive under-bidding which can reduce worker wages. The prevailing wage in both federal and California law can include two parts: 1) a basic hourly rate of pay and 2) employer payment of various benefits for the employee such as health and life insurance, pension, vacation, among others. In short, rather than just money, these employers can give their employees money and bona fide benefits as long as the value of both components add up to the prevailing wage rate. This bill would revise the definition of acceptable employer payments toward benefits, and thus what counts as payment of the prevailing wage. SB 954 Page 5 Arguments in Support The State Building and Construction Trades Council of California is the sponsor of this bill and writes in support: "This bill will protect construction workers on public works projects by ensuring they receive their rightfully owed wages. The bill prohibits contractors/employers from, without the consent of the worker or worker's collective bargaining representative, deducting a portion of the worker's hourly wages for use by contractor associations. Contractors on public works projects are required to pay their employees at least the prevailing wage applicable for the craft and for the locality in which the work is performed. The Labor Code lists the types of fringe benefit payments that can be taken as a credit against the obligation to pay cash wages. These include payment for healthcare, pension contributions, vacation, and other payments that directly benefit the employee. Additionally, Labor Code §1773.1 allows employers to take credit for contributions to apprenticeship training and for contributions required by a collective bargaining agreement (CBA) for worker protection programs, administrative fees for collective bargaining, and industry advancement funds. SB 954 Page 6 However, while Labor Code §1773.1 allows contractors to take credits for contributions to industry advancement funds that are required by a CBA, current law is not sufficiently clear that the employer must actually be a party to a CBA that requires the contributions. This ambiguity has been utilized by contractors to reduce workers' wages to fund their own "industry advancement funds" without worker representation or say on whether they want these deductions to occur, for what purposes the money can be used, and the amount of the deduction. In fact, these funds are often used to support activities that are contrary to the interests of workers, such as efforts to weaken health and safety standards, lower wages on public works, and water down apprenticeship training standards. [This bill] will protect construction workers on public works projects by ensuring they receive their full prevailing wages, unless, through collective bargaining they have negotiated with employers on deductions for industry advancement funds. Collective bargaining allows workers to be equal partners in the decision-making process on whether such deductions are made and how those funds will be used in order to equally represent the interests and well-being of both contractors and workers. The sanctity of the collective bargaining process is essential to level the playing field between management and labor by giving workers a strong voice and a seat at the negotiating SB 954 Page 7 table, so that any payments that reduce workers' wages are actually in the interests of workers." Arguments in Opposition Opponents state that contractors are allowed credits toward their prevailing wage obligation for a range of cash wages and benefit payments. Funds deposited by both union and non-union contractors into the "other payments" category, which include benefits, may be used for "industry advancement." Opponents claim that this bill is now trying to eliminate non-union contractors' ability to fund industry advancement as part of their permitted credits when calculating the prevailing wage for their workers. Opponents contend that the Legislature should not be singling out prevailing wage contributions based on the union or non-union status of the contractor. This bill is devoid of conditions that empower workers represented by a union to have democratic control and proper accounting of trusts and committees that receive these employer payments. Instead, opponents believe that this bill simply bans any payments not made pursuant to a CBA. Opponents claim that California can assist in building a skilled-workforce through education and hands-on training utilizing funds from the "other payments" category for industry advancement. This bill takes much of that away by saying only union contractors may use these funds for industry advancement. SB 954 Page 8 In addition, opponents argue that neither the federal government nor the state government require expenditure reports from the entities that receive employer payments under existing law. Therefore, they argue that workers have no means to know of, control or receive a proper accounting of the entities receiving these payments designated as credits against their prevailing wage - even those under a CBA. They suggest that this bill should instead be amended to require the Division of Labor Statistics and Research to annually obtain reports and to examine expenditures of all entities that receive employer payments before it designates those employer payments as a credit against the prevailing wage. They believe there is a strong need for California to exercise strong oversight and regulation of entities that receive employer payments as a legitimate credit against the prevailing wage paid to workers. Finally, opponents express particular concern about the most recent amendments to this bill that provide that per diem wages may include employer payments for "other purposes similar" to certain apprenticeship or other training programs only if such payments are made pursuant to a collective bargaining agreement to which the employer is obligated. They argue that this new amendment essentially says that individual and non-union contractors will no longer be able to include their apprenticeship training contributions as part of the prevailing wage calculations because they are not party to a collective bargaining agreement. SB 954 Page 9 However, the language of this bill does not appear to impact the ability of an employer under current law to include payments for authorized apprenticeship or other training programs. The qualification that certain payments must be made pursuant to a collective bargaining agreement applies to payments made for "other purposes similar" to payments for apprenticeship or other training programs. Therefore, by definition this limitation applies only to employer payments for something "other" than an authorized apprenticeship or other training program. Moreover, the sponsor of the bill has indicated that this bill is not intended to limit credit for employer payments for authorized apprenticeship or other training programs as provided under existing law. Previous Related Legislation SB 776 (Corbett) Chapter 169, Statutes of 2013 prohibited 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 and provided 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. SB 954 Page 10 REGISTERED SUPPORT / OPPOSITION: Support Air Conditioning Sheet Metal Association Air-conditioning & Refrigeration Contractors Association California Chapters of the National Electrical Contractors Association California Labor Federation, AFL-CIO California Legislative Conference of the Plumbing, Heating and Piping Industry California State Association of Electrical Workers SB 954 Page 11 California State Pipe Trades Council Finishing Contractors Association of Southern California International Union of Elevator Construtors Northern California Allied Trades Southern California Contractors Association State Building and Construction Trades Council (sponsor) United Contractors Wall and Ceiling Alliance Western States Council of Sheet Metal Workers Opposition Air Conditioning Trade Association Associated Builders and Contractors of California SB 954 Page 12 Associated Builders and Contractors-San Diego Chapter California Construction Advancement Group California Construction Compliance Group Plumbing-Heating-Cooling Contractors Association of California Western Electrical Contractors Association Analysis Prepared by:Taylor Jackson / L. & E. / (916) 319-2091