BILL ANALYSIS
AB 2770
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Date of Hearing: April 21, 2010
ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT
Sandre Swanson, Chair
AB 2770 (Monning) - As Amended: April 13, 2010
SUBJECT : Employee wages and working hours: violators.
SUMMARY :
1)Requires the Labor and Workforce Development Agency (Agency)
in consultation with the Franchise Tax Board (FTB) and the
Economic and Employment Enforcement Coalition (EEEC) to
develop and implement a set of standards that, if met by an
employer, would trigger a recommendation for a tax audit or
investigation of employers violating state laws regarding
wages, hours and working conditions.
2)Requires the Labor Commissioner (LC) to take specified actions
to facilitate audits and investigations of employers who meet
the standards required by this bill after July 1, 2011.
3)States related findings and declarations to the underground
economy.
EXISTING LAW
1)Establishes the Joint Enforcement Strike Force on the
Underground Economy (JESF) to combat the underground economy
and to report to the Legislature by June 30 of each year.
JESF is a partnership involving the Employment Development
Department (EDD), the Division of Labor Standards Enforcement,
the Department of Consumer Affairs, FTB, the State Board of
Equalization, and the United States Department of Justice.
2)Designates the Director of EDD as the chairperson of JESF and
authorizes employees of any of the agencies that participate
in JESF to issue Labor Code citations and penalty assessment
orders to employers found in violation of the law.
3)Establishes the EEEC, which consists of investigators from the
Division of Labor Standards Enforcement (DLSE), the Division
of Occupational Safety and Health (DOSH), the EDD, the
Contractor's State License Board, and the U.S. Department of
Labor (DOL).
AB 2770
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FISCAL EFFECT : Unknown
COMMENTS : According to the author, California's vast
underground economy is thriving. According to EDD analysis of
IRS data, California's underground economy is worth between $60
and 140 billion a year. Because business in the underground
economy is conducted outside the bounds of state law, businesses
operating there are able to gain an unfair advantage over their
law-abiding competitors by flouting labor laws and ignoring
their tax obligations to state and local governments.
The author argues that violations of labor and tax laws often go
hand in hand. Every time an employer fails to pay a worker
minimum wage, ignores overtime pay requirements, or simply pays
in cash under the table, the state loses revenues from income
and payroll taxes that fund the unemployment insurance system,
paid family leave, disability insurance and vital state general
fund programs.
The Franchise Tax Board and the Board of Equalization estimate
that an average of $8.5 billion in owed corporate, personal, and
sales and use taxes go uncollected in California each year, with
unreported and underreported economic activity responsible for
the vast majority of that total. The State Controller's office
estimates that 11% of taxes owed in California go uncollected,
and another 3% are collected only through state enforcement.
The author notes that as the state faces a multi-billion dollar
budget deficit, increased collection of already-owed taxes
should be a top budget priority. Despite the clear nexus
between employers that violate both sets of laws, there is no
formal process to ensure that the enforcement efforts of one
department are reflected in the work of another. This lack of
coordination is worsened by the limited enforcement resources
available in California. For the past several decades, labor
law enforcement has been on the decline. Between 1980 and 2000,
California's workforce grew 48 percent, but the DLSE staffing
levels went down 7.6%.
The author argues that with such constrained enforcement
capacity, the state should do all it can to maximize the impact
of the enforcement activities that are taking place. This bill
allows them to do this, while building on the work of the EEEC
and without being unnecessarily prescriptive. This bill is
AB 2770
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necessary to better leverage limited state resources, encourage
compliance with state labor laws, and maximize state revenues by
collecting funds otherwise lost to the underground economy.
This bill is supported by the Spa & Pool Industry Council
(SPEC), who states that employers operating in the underground
economy hurt everyone, the state loses billions of dollars each
year in tax revenues, workers are forced to go without basic
employment protections, and law-abiding businesses are
confronted with unfair competition from scofflaw competitors.
SPEC states that, as legitimate employers working in the pool
and spa industry in California, they support the efforts of this
bill to target those employers that operate in the underground
economy in flagrant violation of the law, and not employers that
commit minor or inadvertent violations of existing law.
PRIOR LEGISLATION
This bill is identical to AB 2879 (Leno) from 2008. That bill
was held in the Senate Committee on Appropriations.
This bill is similar, but not identical to AB 875 (Koretz) of
2005. That measure was vetoed by Governor Schwarzenegger.
REGISTERED SUPPORT / OPPOSITION :
Support
California Labor Federation, AFL-CIO
California Rural Legal Assistance Foundation
Spa & Pool Industry Education Council
Opposition
None on file.
Analysis Prepared by : Ben Ebbink / L. & E. / (916) 319-2091