BILL ANALYSIS
Senate Committee on Labor and Industrial Relations
Mark DeSaulnier, Chair
Date of Hearing: June 23, 2010 2009-2010 Regular
Session
Consultant: Gideon L. Baum Fiscal:Yes
Urgency: No
Bill No: AB 2770
Author: Monning
Version: As Amended April 13, 2010
SUBJECT
Employee wages and working hours: violators.
KEY ISSUE
Should the Legislature require the Labor and Workforce
Development Agency, and other governmental entities, create a
set of standards that could trigger a recommendation for a tax
audit or investigation of working conditions?
PURPOSE
To create standards that would flag potential underground
economy activity to tax and labor law enforcement entities.
ANALYSIS
Existing law establishes the Joint Enforcement Strike Force on
the Underground Economy (JESF) to combat the underground
economy. JESF is a partnership involving the Employment
Development Department (EDD), the Division of Labor Standards
Enforcement (DLSE), the Department of Consumer Affairs,
Franchise Tax Board, the State Board of Equalization, and the
United States Department of Justice.
Existing law 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.
Existing law authorizes the Economic and Employment Enforcement
Coalition (EEEC), which consists of investigators from the DLSE,
the Division of Occupational Safety and Health (DOSH), the EDD,
the Contractor's State License Board (CSLB), and the U.S.
Department of Labor (DOL).
This bill :
a) States findings and declarations related to the
underground economy in California;
b) Requires the Labor and Workforce Development 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;
c) Requires the Labor Commissioner or EEEC, depending on
jurisdiction, to take the following actions with respect to
an employer who has met the above-mentioned audit
standards:
1) Notify the appropriate state tax authorities
each time the set of standards is met by an employer;
2) Provide the appropriate state tax authorities
with the name of the employer and all relevant and
necessary information regarding the violations; and
3) Make a recommendation to the appropriate state
tax authorities that the employer be audited or
investigated.
d) Specifies that the audits cannot be conducted until
after July 1, 2011.
COMMENTS
1. Need for this bill?
Hearing Date: June 23, 2010 AB 2770
Consultant: Gideon L. Baum Page 2
Senate Committee on Labor and Industrial Relations
According to 2000 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 notes that, frequently, violations of labor and tax
laws often go hand in hand. When an employer fails to pay a
worker minimum wage or overtime pay or utilizes unreported
cash payments, the state loses revenues from income and
payroll taxes that fund the unemployment insurance system,
paid family leave, disability insurance and 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 struggles with a
multi-billion dollar budget deficit, 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%. When normalized by the size
of the workforce, the 2000 DLSE staffing level is 7% lower
than in 1990 and 36% lower than in 1980.
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
Hearing Date: June 23, 2010 AB 2770
Consultant: Gideon L. Baum Page 3
Senate Committee on Labor and Industrial Relations
of the EEEC and without being unnecessarily prescriptive.
This bill is 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.
2. Proponent Arguments :
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.
3. Opponent Arguments :
The California Department of Finance (DOF) is opposed to the
bill for fiscal, rather than policy, reasons. DOF reports
that Department of Labor Standards Enforcement estimates costs
at approximately $590,000 in special fund (Labor Enforcement
and Compliance Fund) costs to implement and $440,000 in
on-going costs from the same fund. The Franchise Tax Board
reports minor and absorbable costs to implement this bill.
4. 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.
SUPPORT
California Labor Federation
Spa & Pool Industry Education Council
Hearing Date: June 23, 2010 AB 2770
Consultant: Gideon L. Baum Page 4
Senate Committee on Labor and Industrial Relations
OPPOSITION
California Department of Finance
Hearing Date: June 23, 2010 AB 2770
Consultant: Gideon L. Baum Page 5
Senate Committee on Labor and Industrial Relations