BILL ANALYSIS �
AB 551
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Date of Hearing: May 11, 2011
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 551 (Campos) - As Introduced: February 16, 2011
Policy Committee: Labor and
Employment Vote: 5-1
Judiciary 7-2
Urgency: No State Mandated Local Program:
No Reimbursable: No
SUMMARY
This bill increase the penalties for contractors/subcontractors
who fail to pay the prevailing wage on public works projects, as
specified. Specifically, this bill:
1)Increases the maximum penalty from $50 to $100 per calendar
day for each worker paid less than the prevailing wage for the
work or craft in which the worker is employed, as specified.
2)Increases the minimum penalty from $10 to $40 per calendar day
for each worker paid less than the prevailing wage, unless the
failure of the contractor/subcontractor to pay the correct
wage was a good faith mistake, as specified.
3)Increases the minimum penalty from $20 to $80 per calendar day
for each worker paid less than the prevailing wage, if the
contractor/subcontractor has been assessed penalties within
the previous three years for failing to meet its prevailing
wage obligations on a separate contract, as specified.
4)Increases the minimum penalty from $30 to $120 per calendar
day for each worker paid less than the prevailing wage, if the
Labor Commissioner (LC) determines the violation was willful.
5)Increases the penalty from $25 to $100 for each calendar day,
for each worker, until the contractor /subcontractor complies
with the 10-day time period requesting payroll records, as
specified.
AB 551
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6)Prohibits, for three years, a contractor/subcontractor from
performing a public works project when it has committed two or
more separate willful prevailing wage violations within a
three- year period.
7)Debars a contractor/subcontractor from working on a public
works project when it fails to produce payroll records to the
LC in a timely manner, as specified.
FISCAL EFFECT
1)Costs to enforce this measure are likely, minor, and
absorbable.
2)Potential for increased revenue due to the proposed higher
fine structure. Currently, the Division of Labor Enforcement
within the Department of Industrial Relations investigates
prevailing wage claims. According to the 2009 annual Bureau
of Field Enforcement (BFE) report, there were 1,352 cases
opened regarding prevailing wage violations. These cases led
to $4.5 million in penalties assessed, with a total of
$839,123 collected in that year. Likewise, the BFE reports a
total of $10.8 million in back wages due to workers on public
works projects. Of this amount $5.2 million were collected in
that year.
COMMENTS
1)Background . According to 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 further notes that the
prevailing wage is determined by the Director of DIR in
written determinations issued annually on February 22 and
August 22.
Existing law establishes penalties for
contractors/subcontractors who fail to pay the prevailing wage
to workers and provide payroll records, upon request. The
chart below illustrates current penalties (per calendar day)
and the proposed increases in this measure.
AB 551
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-----------------------------------------------------
| | Current | AB |
| | Law | 551 |
|-----------------------------------+----------+------|
|Maximum penalty for paying less | $50 | $100 |
|than the prevailing wage | | |
|-----------------------------------+----------+------|
|Minimum penalty for paying less | $10 | $40 |
|than prevailing wage, unless a | | |
|good faith mistake | | |
|-----------------------------------+----------+------|
|Minimum penalty for paying less | $20 | $80 |
|than prevailing wage, if assessed | | |
|penalties within the previous | | |
|three years. | | |
|-----------------------------------+----------+------|
|Minimum penalty for paying less | $30 | $120 |
|than prevailing wage, if LC | | |
|determines violation was willful. | | |
| | | |
|-----------------------------------+----------+------|
|Penalty for compiling with payroll | $25 |$100 |
|records request | | |
-----------------------------------------------------
Statue also provides whenever a contractor/subcontractor has
been found by the LC to be in willful violation of public
works laws for a second and subsequent time within a
three-year period, the entity shall be ineligible for an up to
three-year period from bidding on or being awarded
a public works contract, or performing work as a subcontractor
on a public works contract. This bill proposes to reduce the
number of violations from three to two that determines a
contractor/subcontractor's eligibility for public works
projects, as specified.
2)Rationale . According to the author, "Currently, contractors
are not deterred by 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 economy) simply make a business decision to
pay the fines if they get caught figuring that with fewer and
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fewer inspectors at the Labor Commissioner's office the
chances of them getting caught violating the Act are very
low." This bill, sponsored by the Building and Construction
Trades Council, increases penalties for violations of
prevailing wage statute, as specified.
3)Opposition . Opponents, private contractors of this measure
argue the majority of prevailing wage penalties are due to
clerical errors and good faith disputes. They argue the
current fine structure is sufficient and "high enough to put
small to medium size companies in financial jeopardy. It is
not uncommon to see cases where the penalties exceed the
alleged wage underpayment."
4)Previous legislation . AB 45 (Padilla) increased the penalty
on contractors that willfully violate prevailing wage law and
permanently removed such contractors from competition with
law-abiding contractors. This measure was vetoed by Governor
Schwarzenegger in October 2009 with the following message:
"This bill would enact new penalties against contractors found
by the Labor Commissioner to be in violation of the public
works law with intent to defraud. This bill is not needed
because provisions in existing law are already adequate to
preclude unscrupulous contractors from bidding on public works
jobs. The standard of what constitutes "intent to defraud" to
warrant permanent debarment is also not sufficiently defined.
Further, recently enacted legislation strengthens existing law
by creating an enforcement program to minimize public works
violations."
Analysis Prepared by : Kimberly Rodriguez / APPR. / (916)
319-2081