BILL ANALYSIS
AB 1881
Page A
Date of Hearing: May 5, 2010
ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT
Sandre Swanson, Chair
AB 1881 (Monning) - As Introduced: February 16, 2010
SUBJECT : Recovery of wages: liquidated damages.
SUMMARY : Increases the amount of liquidated damages that an
employee is entitled when recovering wages that were unlawfully
unpaid. Specifically, this bill :
Increases, to two times the wages unlawfully unpaid and interest
thereon, the amount of liquidated damages that may be awarded to
an employee when an employer fails to pay minimum wage.
EXISTING FEDERAL LAW establishes the Fair Labor Standards Act of
1938, which sets a federal minimum wage, with specified
exceptions.
EXISTING STATE LAW :
1)Sets a minimum wage for the state, with limited exceptions.
2)Establishes the Industrial Wage Commission to, among other
duties, reviews the adequacy of the minimum wage every two
years.
3)Prohibits employers, unless specified, from paying less than
the state minimum wage.
4)Permits an individual to sue his or her employer for
liquidated damages in an amount that is equal to the wages
unlawfully unpaid when the employer pays that individual less
than the minimum wage.
FISCAL EFFECT : Unknown
COMMENTS :
This measure is sponsored by the California Rural Legal
Assistance Foundation (CRLAF), who argues that there is
substantial evidence of widespread minimum wage violations in
California, particularly in the underground economy.
AB 1881
Page B
Recent Studies on the Prevalence of Minimum Wage Violations
Recent studies have highlighted concerns about alleged
widespread minimum wage violations in the United States and in
California, particularly in the underground economy.
For example, in 2009 the Ford Foundation sponsored a study,
Broken Laws, Unprotected Workers: Violations of Employment and
Labor Laws in America's Cities (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 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.
The study also notes that minimum wage violation rates vary
significantly by industry, and occupation. For example, some
industries, such as apparel and textile manufacturing and
personal and repair services have minimum wage violation rates
that exceed 40 percent, while others, including restaurants, and
retail and grocery stores, have rates of 20 to 25 percent.
Industries with the lowest rates of minimum wage violations,
including construction and home health care, have rates of 12 to
13 percent. Violation rates among occupations ranges from 66
percent in childcare workers, to 21 percent for cashiers.
A study by the UCLA Institute for Research and Labor and
Employment, Wage Theft and Workplace Violations in Los Angeles:
The Failure of Employment and Labor Law for Low-Wage Workers
(L.A. study), focused on a survey of 1,815 workers in Los
Angeles County. This survey found that almost 30 percent of the
workers sampled were paid less than the minimum wage in the work
week preceding the survey. In addition, the research found that
minimum wage violations were greater for women than for men, and
greater for immigrants than for U.S. born workers. As with the
study mentioned previously, the L.A. study found that job
characteristics, such as industry and occupation, have an impact
on minimum wage violation rates.
The L.A. study 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
AB 1881
Page C
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 L.A. study 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.
Both of the aforementioned studies make the following public
policy recommendations to address these issues: 1) strengthen
government enforcement of existing employment and labor laws; 2)
update legal standards; and 3) establish equal status for
immigrants to ensure that they have the full protection and
remedies available under employment and labor laws.
Recent Enforcement Data in California
As a preliminary manner, it is important to note the impact of
the underground economy generally in California. In 2009, the
Economic and Employment Enforcement Coalition (EEEC) stated that
the underground economy in California has been conservatively
estimated to amount to over $6.5 billion in just unreported
taxable wage income every year (California's Tax Gap, 2005
California Legislative Analyst's Office). This $6.5 billion
figure significantly understates the problem given that it does
not fully take into consideration the failure of underground
businesses to fund the unemployment tax program, the workers'
compensation system, employer funded worker safety programs, and
similar programs.
The Bureau of Field Enforcement (BOFE) within the Division of
Labor Standards Enforcement (DLSE) investigates complaints and
takes enforcement actions to ensure employees are not being
required or permitted to work under unlawful conditions.
Enforcement action taken by BOFE investigators involves the
enforcement of child labor laws; the requirement of employers to
carry workers' compensation insurance coverage; audits of
payroll records, collection of unpaid minimum wages, overtime,
as well as prevailing and other unpaid wages; the issuance of
civil and criminal citations; the confiscation of illegally
manufactured garments; and injunctive relief to preclude further
AB 1881
Page D
violations of the law.
In the calendar year 2009 (the most recent year for which data
is available); the BOFE conducted a total of 9,053 inspections,
resulting in a total of 4,465 citations. The largest single
source of violations and citations was the failure to carry
workers' compensation insurance with 2,257 citations in 2009.
In 2009, the BOFE issued 113 citations for minimum wage
violations, fewer than the 135 citations issued in 2008. In
2006, the BOFE issued only 32 citations for minimum wage
violations.
ARGUMENTS IN SUPPORT
As mentioned above, this measure is sponsored by the California
Rural Legal Assistance Foundation (CRLAF), who argues that it
will bring California into the mainstream with other states that
have recently increased damages paid to workers when their
employers cheat them out of the state's respective minimum
wages.
CRLAF writes that this bill is a response to the chronic
underfunding of the DLSE which inhibits its ability to detect,
cite and collect civil penalties for minimum wage violations,
particularly in the underground economy. They assert that
DLSE's underfunding also significantly undercuts its ability to
collect unpaid wages.
CRLAF also notes that DLSE has fewer authorized enforcement
positions in 2010 than it had in 1980, and has a demonstrably
poor record of either citing minimum wage or overtime
violations, or collection civil penalty assessments for these
violations, both of which undercut the deterrent effect of the
Labor Codes civil penalty provisions. They argue that there
needs to be more done to increase the effectiveness of both
public and private enforcement of wage violations in California
and follow the lead of ten other states, including New Mexico,
Idaho, Michigan and Maine, that have enacted statutes that
provide for at least the same level of damages in unpaid wages
proposed in this bill.
ARGUMENTS IN OPPOSITION
Opponents of this measure, including the California Chamber of
AB 1881
Page E
Commerce, the California Bankers Association, and the California
Farm Bureau Federation, argue that the mere availability of
liquidated damages, and this bill's attempt to expand them, are
unjustified and oppressive given that apart from liquidated
damages, employers must make the employee whole and pay a
substantial penalty. In addition, the opponents write that
California employers are already subject to an expansive number
of wage and hour laws and regulations and substantial penalties
for each.
REGISTERED SUPPORT / OPPOSITION :
Support
California Labor Federation, AFL-CIO
California Rural Legal Assistance Foundation (sponsor)
National Lawyers Guild Labor & Employment Committee
Opposition
California Chamber of Commerce
California Association of Health Facilities
California Bankers Association
California Farm Bureau Federation
California Grocers Association
California Independent Grocers Association
Civil Justice Association of California
Western Electrical Contractors Association
Ventura County Agricultural Association
Analysis Prepared by : Shannon McKinley / L. & E. / (916)
319-2091