BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Martha M. Escutia, Chair
2003-2004 Regular Session
AB 1133 A
Assembly Member Koretz B
As Amended July 17, 2003
Hearing Date: August 19, 2003 1
Labor Code 1
CJW:cjt 3
3
SUBJECT
Employment
DESCRIPTION
This bill would provide that an employer who has failed to
satisfy a judgment for unpaid wages within six months of
the conclusion of any appeal shall be required to pay a
penalty equal to the amount of the judgment. An identical
penalty could be imposed for each additional six-month
period in which the judgment remains unpaid, for a maximum
of four penalties, which would be in addition to any
interest earned on the judgment.
(This analysis reflects author's amendments to be offered
in Committee.)
BACKGROUND
Under existing law, an employee or the Labor Commissioner
may sue an employer for failure to pay wages, and may seek
financial penalties for the nonpayment of wages. An action
for wages and penalties may be brought before an
administrative hearing board or a court, and the losing
party may appeal from the judgment.
Once the time for an appeal has expired, or an appeal has
been concluded, an employer who has been found liable is
obliged to pay the amount of the judgment. Where a
judgment remains unpaid 10 days after the time to appeal
has expired and no appeal is pending, the Labor
(more)
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Commissioner may require the employer to post a bond
conditioned upon payment of the judgment, and if the
employer fails to do so, the Commissioner may seek a court
order to close the employer's business until the judgment
is paid.
The author states that industries employing low-wage
workers routinely flout the law by ignoring judgments
entered against them, secure in the belief that neither the
state nor the employee will have the resources to pursue
the matter to final collection. According to the author,
this belief is well-founded: The Department of Labor
Standards Enforcement has neither the staff nor the
resources to pursue many violators, and since wage
judgments often are relatively small, private collection
agencies are uninterested in taking these cases.
As a result, many employees who have gone to hearings and
obtained judgments against their employers are unable to
actually recover the wages owed to them. AB 1133 is
intended to improve their prospects for collection by
adding a penalty equal to the amount of a judgment for
unpaid wages for each six-month period it remains unpaid,
as specified below.
CHANGES TO EXISTING LAW
Existing law provides that an employee or the Labor
Commissioner may bring an action against an employer to
recover unpaid wages, and for penalties associated with the
failure to pay wages. [Labor Code Sec. 200 et seq .]
Existing law provides that interest on the principal amount
of a money judgment remaining unsatisfied shall accrue at
an annual rate of 10 percent. [CCP Sec. 685.010.]
Existing law further provides that, where a judgment for
unpaid wages remains unsatisfied for 10 days after the time
to appeal has expired, and no appeal is pending, the Labor
Commissioner may require the employer to post a bond in an
amount deemed adequate by the Commissioner and which is
conditioned upon the payment of the judgment. [Labor Code
Sec. 240.]
Existing law further provides that, if the employer fails
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to post a bond within 10 days of the Commissioner's demand,
the Commissioner may seek a court order compelling the
employer to furnish the bond or to cease doing business
until the employer has done so. [ Id .]
This bill would provide that, if any judgment against an
employer for nonpayment of wages or associated penalties
remains unsatisfied for six months after the time to appeal
has expired, or after an appeal has been concluded, a
penalty equal to the amount of the judgment shall be
applied.
This bill further would provide that, for each additional
six-month period the judgment remains unsatisfied, an
additional penalty in the amount of the first penalty may
be applied, but in no case shall this penalty be applied
more than four times.
This bill further would provide that the penalty provided
in this section is in addition to any applicable interest
provided for under existing law.
COMMENT
1. Stated need for legislation
The sponsor, Sweatshop Watch, is a coalition of labor and
civil rights organizations serving low-wage workers, with
a focus on garment workers in California. According to
the sponsor, many employers in industries that employ
low-wage workers systematically disregard the law by
ignoring judgments and never paying the workers the money
that they deserve:
Based on data from [the U.S.] Department of Labor and
[the California] Department of Industrial Relations,
garment workers are owed close to $70 million in
unpaid wages and overtime annually. . . . We have
encountered many cases where a garment worker went
through the entire wage claim adjudication process of
the Labor Commissioner's office, won her judgment and
was still unable to receive her unpaid wages and
overtime because the employer refused to pay.
The sponsor asserts that, since the amounts of unpaid
wage judgments generally are not sufficient to attract
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the services of for-profit collection agencies, many
workers who have exercised their rights and prevailed
before the Labor Commissioner find, to their dismay, that
they are still unable to recover their wages - a result
that is discouraging, disempowering, and unfair.
2. Author's amendments
a) To address due process concerns regarding the
relationship between financial penalties and the
judgments on which they are based (discussed in Comment
5), the author will amend the bill to provide for four
successive penalties, each of them equal to the amount
of the original judgment, instead of allowing the
judgment to be doubled and redoubled four times (at
page 2, lines 2-12):
(a) If any judgment for nonpayment of wages or
penalties entered against an employer for a
violation of any provision of this part remains
unsatisfied for a period of six months after the
time to appeal therefrom has expired or any appeal
therefrom has been concluded, a penalty equal to the
amount of the judgment shall be applied.
(b) Thereafter, for each additional six-month
period the judgment remains unsatisfied, the amount
of the judgment is again doubled as a penalty an
additional penalty equal to the amount of the first
penalty shall be applied . In no case shall the
initial award be doubled penalty be applied more
than four times.
With this amendment, the maximum amount due on an
original judgment of $1,000, if all four penalties were
applied, would be $5,000.
b) This bill seeks to impose post-judgment penalties
through an automatic process that will not require a
return to court for disposition. Accordingly, the
author will delete the provision that would allow a
post-judgment award of "costs and reasonable attorney's
fees" incurred in collection, since such an award would
require determination by a court (at page 2, lines
13-16).
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c) Finally, the author will amend the bill to clarify
that any penalties awarded under this section that
remain after costs of collection have been paid shall
be distributed to the employees owed wages pursuant to
the judgment, in proportion to the wages owed.
3. Supporters say increased penalties will encourage
payment of judgments
According to the Senate Labor and Industrial Relations
Committee analysis of this bill, the Department of Labor
Standards and Enforcement (DSLE) is understaffed, has
limited resources, and is unable to pursue all labor law
violators to the fullest extent of the law. In the
absence of resources for increased enforcement, AB 1133
would provide for successive penalties for nonpayment of
wages as a "self-enforcing" mechanism to prod
recalcitrant employers to make these payments before the
penalties increased.
The analysis noted that there has been a "long standing
debate" regarding whether increased enforcement efforts
or enhanced penalties are more effective:
Some argue that penalty enhancements are useless in
the face of the ever-expanding underground economy,
where scofflaw employers will skirt the law regardless
of the severity of the penalty. Others contend that
heightened penalties serve as an appropriate
disincentive for bad actor behavior, ensuring that
employers who might otherwise skirt the law are
compliant.
Many labor and community organizations who have written
in support of the bill state that the increased penalties
provided by AB 1133 not only will encourage employers to
pay their judgments before penalties begin to accrue, but
will provide an incentive to collection agencies to take
these cases and pursue employers who still refuse to pay.
4. Opponents say bill would set bad precedent
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The Chamber of Commerce opposes AB 1133 as currently
drafted, asserting that its imposition of penalties in
the amount of a doubled judgment every six months would
set a "new and very onerous precedent" in the enforcement
of judgments. The Chamber also questions why unpaid wage
claims should be treated so differently from other Labor
Code violations or unpaid judgments in other
circumstances.
The California Manufacturers and Technology Association
(CMTA) also opposes the current bill as "gross overkill,"
asserting that "it is unconscionable to use such an
arbitrary [process as] doubling and doubling again the
amount on unpaid wages in order to enforce payment."
5. Penalties will be modified to conform with U. S.
Supreme Court guidelines
As currently drafted, AB 1133 would assess penalties for
nonpayment of a judgment for unpaid wages by doubling and
redoubling the amount of the judgment a maximum of four
times. Under this formula, a judgment for $1,000 could be
increased to $2,000, $4,000, $8,000, and ultimately
$16,000, with the maximum amount due bearing a 15:1 ratio
of penalties to actual damages.
This penalty scheme has no apparent precedent in civil
law. General guidelines for imposing financial
penalties, however, have been set forth in recent
decisions by the United States Supreme Court. In BMW of
North America v. Gore (1996) 517 U.S. 559, the Court
established guidelines for awarding punitive damages,
requiring courts to take into account (1) the degree of
reprehensibility of the defendant's conduct; (2) the
disparity between the amount of actual financial damages
and the punitive damages awarded; and (3) the disparity
between actual and punitive damages imposed in comparable
cases.
In State Farm Mutual Auto Insurance Co. v. Campbell
(2002) ___ U.S. ___, 123 S. Ct. 1513, the Court expanded
on these guidelines by holding that the second of the BMW
factors - the relationship between punitive and actual
damages -- should not exceed a 9:1 ratio except in the
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most egregious circumstances. According to the Court,
"few awards exceeding a single digit ratio between
punitive and compensatory damages" will satisfy due
process concerns, and "single-digit multipliers are more
likely to comport with due process." [ Id . at 1523.]
The BMW guidelines for assessing the appropriateness of
financial penalties may be applied to AB 1133's current
penalty provision. With respect to "degree of
reprehensibility," the BMW decision indicates that
misconduct resulting in physical injury would be higher
on that scale than misconduct with solely economic
consequences, and that intentional misconduct is more
reprehensible than negligence. [517 U.S. at pp.
575-577.] Under this standard, flouting an order to pay
wages certainly is reprehensible, given the intentional
nature of the conduct and the financial vulnerability of
the victims, but may be lower on the scale of
disgracefulness than recklessness or intentional
misconduct resulting in physical injury or death.
Considering the second factor -- the disparity between
penalties and actual damages -- it is evident that the
maximum penalty allowable under AB 1133 would exceed the
9:1 ratio set forth as a general limit on penalties in
the BMW decision.
Finally, with respect to the third factor, the disparity
between actual and punitive damages in comparable cases
would be considerably less than the disparity under AB
1133, since in comparable unpaid judgments, the only
available penalty is the assessment of 10 percent annual
interest.
AB 1133's proposed penalty scheme might be modified
simply by reducing the number of allowable doublings of
the judgment to three instead of four, which would result
in a 7:1 ratio of penalty to judgment amount that would
fall within the second BMW guideline. In consideration
of the other BMW factors, however, and to provide a
closer nexus between the judgment and the penalty amount,
the author will amend the bill to limit each penalty to
the amount of the original judgment, instead of doubling
and redoubling the amount owed as each penalty is
applied.
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With this modification, an employer who fails to pay a
judgment of $1,000 for six months would be penalized in
the amount of the judgment -- $1,000 - and would owe a
total of $2,000 as a result of the first penalty. Three
subsequent penalties of $1,000 each would increase the
total amount due to $5,000, a maximum penalty that bears
a 4:1 ratio to the underlying judgment.
Support: American Apparel; American Federation of State,
County and Municipal Employees (AFSCME); Asian
Pacific American Legal Center; Bet Tzedek Legal
Services; California Conference Board of the
Amalgamated Transit Union; California Conference of
Machinists; California Employment Lawyers
Association (CELA); California Independent Public
Employees Legislative Council; California Labor
Federation; California Organization of Police and
Sheriffs; California Professional Firefighters;
California Rural Legal Assistance Foundation;
California Teamsters; Coalition for Humane Immigrant
Rights of Los Angeles; Engineers & Scientists of
California; Garment Worker Center; Hotel Employees,
Restaurant Employees International Union; Korean
Immigrant Workers Advocates; La Raza Centro Legal;
Peace Officers Research Association of California
(PORAC); Professional and Technical Engineers, Local
20, IFPTE; United Food & Commercial Workers Region 8
States Council
Opposition: California Chamber of Commerce; California
Manufacturers and Technology Association
HISTORY
Source: Sweatshop Watch
Related Pending Legislation: None Known
Prior Legislation: None Known
Prior Vote: Assembly Committee on Labor and Employment 6-2
Assembly Floor 46-29
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Senate Committee on Labor and Industrial
Relations 5-3
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