BILL ANALYSIS �
AB 551
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Date of Hearing: April 26, 2011
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
AB 551 (Campos) - As Introduced: February 16, 2011
SUBJECT : PUBLIC CONTRACTS: PREVAILING WAGE REQUIREMENTS
KEY ISSUE : SHOULD PENALTIES FOR VIOLATION OF PREVAILING WAGE
LAWS BE INCREASED TO ENHANCE COMPLIANCE?
FISCAL EFFECT : As currently in print this bill is keyed fiscal.
SYNOPSIS
This bill seeks to increase enforcement of prevailing wage laws
in public works contracts by increasing certain penalties for
violation of these laws and by increasing the penalty for the
failure of a contractor or its subcontractors to provide a
timely response to a request by the Division of Labor Standards
Enforcement or other public entities to produce certified
payroll records. Supporters argue that contractors are not
currently deterred by the penalties that exist for violating the
state's prevailing wage law, which have not been raised for many
years. The bill follows prior unsuccessful measures, most of
which were vetoed by Governor Schwarzenegger. The opposition
argues that prevailing wage violations are simply the result of
inadvertent clerical errors or good faith disputes over the law
or facts that are unfairly used by the state labor agency and
private enforcement actions to inappropriately drive litigation
and force unreasonable settlements.
SUMMARY : Increases penalties and enforcement regarding
violations of prevailing wage laws for public works.
Specifically, this bill :
1)Increases the maximum penalty, from $50 to $100 per calendar
day, or portion thereof, for each worker paid less than the
prevailing wage, for contractors and subcontractors who fail
to pay the prevailing wage rate as determined by the director
for the work or craft in which the worker is employed for any
public work done as the contract by the contractor.
2)Increases the minimum penalty for contractors and
subcontractors who fail to pay the prevailing wage from $20
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dollars to $40 dollars for each calendar day, or portion
thereof, for each worker paid less than the prevailing wage
rate unless the violation was a good faith mistake and if so,
the error was promptly and voluntarily corrected when brought
to the attention of the contractor or subcontractor.
3)Increases the minimum penalty, from $20 dollars to $80
dollars, for each calendar day, or portion thereof, for each
worker paid less than the prevailing wage, for contractors and
subcontractors who have been assessed penalties within the
previous three years for failing to meet its prevailing wage
obligations on a separate contract, unless those penalties
were subsequently withdrawn or overturned.
4)Increases the minimum penalty, from $30 dollars to $120
dollars, for each calendar day, or portion thereof, for each
worker paid less than the prevailing wage rate if the Labor
Commissioner determines that the violation was willful, as
defined in subdivision (c) of Section 1777.1 of the Labor
Code.
5)Prohibits, for three years, a contractor or subcontractor from
performing a public works project when the contractor or
subcontractor has committed two or more separate willful
prevailing wage violations within a three year period.
6)Debars contractors working on public works projects when they
or their subcontractors fail to provide a timely response to a
request by the Division of Labor Standards Enforcement (DLSE),
the Division of Apprenticeship Standards or the awarding body
to produce certified payroll records; requires contractors and
subcontractors to produce the requested certified payroll
records within 30 days; and prohibits contractors and
subcontractors who violate this provision from bidding on,
being awarded, or performing work on a public works project
for a minimum of one year and a maximum of three years.
EXISTING LAW :
1)Generally requires that not less than the general prevailing
rate of per diem wages, as specified, be paid to workers
employed on a public work, as defined. Existing law requires
a contractor or subcontractor to submit, to the state or
political subdivision on whose behalf a public work is being
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performed, a penalty of not more than $50 per calendar day,
and not less than $10 per calendar day, as provided and
determined by the Labor Commissioner, for violations of these
prevailing wage provisions. (Labor Code section 1775.)
2)Requires each contractor and subcontractor performing work on
a public work to keep accurate payroll records regarding his
or her employees. Existing law requires that these records
contain the information specified by the Division of Labor
Standards Enforcement, and provides that a contractor or
subcontractor has 10 days in which to comply after receipt of
a written notice requesting the records, or is subject to
forfeiting a penalty of $25 for each calendar day for each
worker until strict compliance is effectuated. (Labor Code
section 1776.)
3)Provides that whenever a contractor or subcontractor
performing a public works project is found by the Labor
Commissioner to be in violation of certain provisions of law
relating to payment of prevailing wages, with intent to
defraud, or in willful violation of those provisions of law,
the contractor or subcontractor or a firm, corporation,
partnership, or association in which the contractor or
subcontractor has a substantial interest is ineligible to bid
on or to receive a public works contract for specified periods
of time. (Labor Code section 1777.1.)
4)Establishes the federal Davis-Bacon and Related Acts (DBRA),
which requires all contractors and subcontractors performing
work on federal construction contracts or federally assisted
contracts in excess of $2,000. (40 U.S.C. � 3141.)
COMMENTS : The author explains the reason for the bill as
follows:
Currently, contractors are not deterred by the penalties
that exist for violating the state's Prevailing Wage Act.
The penalties are too low to act as a real deterrent and
have not been raised or amended in years. Some recalcitrant
contractors (often those that are in the underground
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economy) simply make a business decision to pay the fines
if they get caught figuring that with fewer and fewer
inspectors at the Labor Commissioner's office the chances
of them getting caught violating the Act are very low.
This bill simply stiffens the penalty for contractors who
violate the Prevailing Wage Act with regards to providing
certified payroll records upon request. Under AB 551, the
fines would increase from $25 per calendar day to $100 per
calendar day. In addition a contractor could face debarment
and not be allowed to bid on public works projects for up
to three years.
Pertaining to paying the prevailing wage, if a contractor
willfully violates the Act two or more times within a three
year period instead of simply willfully violating the Act
they can be prohibited from bidding on a public works
project for up to three years.
This amount can be lowered or raised to different mandatory
minimums by the Labor Commissioner depending upon whether
the underpayment was willful, whether the contractor had a
previous record of underpayment within the last three
years, and/or if the contractor made a "good faith mistake"
that was promptly and voluntarily remedied by the
contractor.
Prevailing Wage Rate Determined By State. According to the
Department of Industrial Relations (DIR), California's
prevailing wage rate is the basic hourly rate paid on public
works projects to a majority of workers engaged in a particular
craft, classification or type of work within the locality and in
the nearest labor market area (if a majority of such workers are
paid at a single rate). If there is no single rate paid to a
majority, the single or modal rate being paid to the greater
number of workers is prevailing.
DIR notes that the prevailing wage is determined by the Director
of DIR in written determinations issued annually on February 22
and August 22.
DIR notes that the state's prevailing wage laws were enacted to
ensure that contractors' abilities to get public works contracts
were not based on paying their workers lower wage rates than
their competitors. DIR states that all bidders are required to
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use the same wage rates when bidding on a public works project
because California law requires contractors to pay no less than
the general prevailing rate of per diem wages to all workers
employed on a public works project with a cost of $1,000 or
more. If a public agency, or "awarding body," elects to
initiate and enforce a labor compliance program (as defined in
Labor Code Section 1771.5) that has been approved by the
Director of DIR, for every public works project under its
authority, the prevailing wage is not required to be paid for
public works projects of $25,000 or less when the project is for
construction work. Public agencies are also exempt from
prevailing wage rates for public works projects of under $15,000
when the project is for alteration, demolition, repair or
maintenance work.
This Bill Addresses Concerns Regarding Failure to Pay Prevailing
Wages Under Existing Law. According to the author, contractors
are not deterred by the current penalties assessed for violating
the state's prevailing wage law. The author states that the
existing penalties are too low and have not been raised or
amended in years.
The Bureau of Field Enforcement (BFE) investigates complaints
arising from violations of the state's prevailing wage laws and
conducts payroll audits on behalf of California's workers for
back wages owed. According to the 2009 Annual Report on the
Effectiveness of Bureau of Field Enforcement (BFE Report), BFE
opened 1,352 new cases involving prevailing wage violations. In
addition, a total of $10,785,730 in back wages were found due to
workers. Of the $4,539,501 in penalties that BFE issued in
2009, $839,123 had been collected in that year.
In addition, the 2009 BFE Report notes that the Labor
Commissioner signed Orders of Debarment for nine contractor
companies and their principles; the highest known number of
debarments in a single year. The 2009 BFE Report also state
that DSLE initiated debarment actions against three additional
contractors and their principles for several Labor Code
violations, including the failure to pay correct prevailing wage
rates.
Prior Related Legislation Has Failed or Been Vetoed. SB 45
(Padilla) of 2009 would have increased the penalty on
contractors that willfully violate the prevailing wage law and
permanently debarred such contractors from competing with
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law-abiding contractors. This bill was vetoed by Governor
Schwarzenegger. In his veto message, the Governor wrote that
the bill was unnecessary because provisions in existing laws
were adequate to preclude unscrupulous contractors from bidding
on public works jobs.
AB 2002 (de Leon) of 2008 would have increased the penalties and
defined the interest accrual rate, as determined by the Labor
Commissioner, when a contractor or subcontractor violates the
public works and prevailing wage laws. This bill would have
also subjected a contractor to a penalty assessment only when a
contractor had knowledge or should have had knowledge of its
subcontractor's noncompliance. That bill was vetoed by Governor
Schwarzenegger, whose veto message stated that proponents failed
to demonstrate a need for the increased penalties or evidence
that simply doubling penalties and creating new liabilities is
an effective way of achieving greater compliance.
SB 569 (Steinberg) of 2007 would have revised various provisions
of the law related to enforcement of the payment of prevailing
wages on public works projects. That bill was held in the
Assembly Appropriations Committee.
ARGUMENTS IN SUPPORT : In their letter expressing sponsorship of
this bill, the State Building and Construction Trades Council of
California (SBCTCC) writes that the intent of this bill is to
deter contractors from simply treating the current minimal fines
levied for abuses of the prevailing wage as a cost of doing
business. SBCTCC asserts that the penalties for failing to
provide certified payroll records in a timely manner upon
request from a state agency are ineffective and hinder the
ability of the state to investigate claims of wage violations by
unscrupulous employers. In addition, SBCTCC writes that making
it easier for the state to bar unscrupulous contractors from
bidding on public works projects for three years and increasing
the monetary fines for other violations will put teeth back into
the enforcement of state law. The California Teamsters Public
Affairs Council writes that this bill will strengthen prevailing
wage laws by enhancing enforcement.
ARGUMENTS IN OPPOSITION : The Western Electrical Contractors
Association opposes the bill because it "is strongly opposed to
prevailing wage penalties in general because almost all the
prevailing wage violations it sees are the result of inadvertent
clerical errors ? or good faith disputes over the law or
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facts?." WECA states that the Division of Labor Standards
Enforcement "uses the potential of imposing onerous penalties to
force unreasonable settlements, and private parties use the
prospect of penalties in civil cases and class action lawsuits
to drive unwarranted settlements." WECA argues that these
penalties put many companies in financial jeopardy, and are
either unnecessary or should be limited to violations that lack
a good faith defense, adding that the federal Davis-Bacon act is
strongly enforced without penalties of any sort.
The Association of California Construction Managers has taken a
support-if-amended position, appreciating that the bill
differentiates between willful violations and good faith
mistakes, but expressing concern that there is no maximum
penalty for good faith errors. ACCM argues that without a
maximum it is possible that a fine for a good faith error "could
still be almost the same as fines on contractors and
subcontractors who make willful and intentional incorrect
payments." ACCM suggests that the maximum fine for good faith
errors should be the same as the maximum limit in current law -
i.e., would not increase under this bill.
REGISTERED SUPPORT / OPPOSITION :
Support
State Building and Construction Trades Council of California
(sponsor)
Association of California Construction Managers (if amended)
California Labor Federation
California State Pipe Trades Council
California Teamsters Public Affairs Council
Coalition of California Utility Employees
International Brotherhood of Electrical Workers
International Union of Elevator Constructors
Utility Workers Union of America
Western States Council of Sheet Metal Workers
Opposition
Western Electrical Contractors Association
Analysis Prepared by : Kevin G. Baker / JUD. / (916) 319-2334
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