BILL ANALYSIS �
Senate Committee on Labor and Industrial Relations
Ted W. Lieu, Chair
Date of Hearing: June 22, 2011 2011-2012 Regular
Session
Consultant: Gideon L. Baum Fiscal:Yes
Urgency: No
Bill No: AB 551
Author: Campos
Version: As Amended June 15, 2011
SUBJECT
Public contracts: prevailing wage requirements: violations.
KEY ISSUE
Should the Legislature increase penalties for failing to pay
prevailing wages on public works projects and failing to provide
payroll records in a timely manner, as well as create a process
for debarment for failing to follow the laws governing public
works contracts?
PURPOSE
To stiffen penalties and consequences in order to encourage
compliance with public works laws and the payment of the
prevailing wage.
ANALYSIS
Existing law requires that, on public works projects in excess
of $1,000, the relevant prevailing wage must be paid to all
workers employed on the project. (Labor Code �1771)
Existing law requires that body awarding any contract for public
work must obtain the general prevailing rate of per diem wages
and the general prevailing rate for holiday and overtime work in
the locality in which the public work is to be performed for
each craft, classification, or type of worker needed to execute
the contract from the Director of Industrial Relations. (Labor
Code �1773)
Existing law provides a hearing process in the event a
contractor or subcontractor is accused of failing to pay
appropriate wages to his or her employees. If found guilty, the
contractor or subcontractor is required to pay the unpaid wages,
plus interest, as well as liquidated damages in the amount of
the unpaid wages if the amount goes unpaid for 60 days. (Labor
Code �� 1741, 1742, and 1742.1)
Existing law additionally requires that a contractor or
subcontractor pay the following penalties to the state or
political subdivision:
1) A minimum of $10 for each calendar day, or portion
thereof, for each worker paid less than the prevailing wage
rate, unless the failure to pay was in good faith and, if
so, the error was promptly and voluntarily corrected when
brought to the attention of the contractor or
subcontractor;
2) A minimum of $20 for each calendar day, or portion
thereof, for each worker paid less than the prevailing wage
rate, if the contractor or subcontract has been assessed
penalties within the previous three years for failing to
pay prevailing wage; and,
3) A minimum of $30 for each calendar day, or portion
thereof, for each worker paid less than the prevailing wage
if the Labor Commissioner finds that the violation was
willful.
These penalties are capped at of $50 for each calendar day, or
portion thereof, for each worker paid less than the prevailing
wage. (Labor Code � 1775)
Existing law also requires each contractor or subcontractor to
keep accurate payroll records which include each employee's
personal information, hours worked, and wages paid. (Labor Code
� 1776)
Existing law provides that if the payroll records are requested
Hearing Date: June 22, 2011 AB 551
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Senate Committee on Labor and Industrial Relations
by the Division of Labor Standards Enforcement (DLSE), the
Division of Apprenticeship Standards or the awarding body, then
the contractor or subcontractor has 10 days to comply. If the
contractor or subcontractor fails to comply, then he or she must
pay $25 for each calendar day , or portion thereof, until strict
compliance is effectuated. (Labor Code � 1776)
Existing law requires that the Labor Commissioner, not less than
semiannually, publish and distribute to awarding bodies a list
of contractors who are ineligible to bid on or be awarded a
public works contract, or to perform work as a subcontractor on
a public works project. (Labor Code � 1777.1)
This bill would increase the penalties due to the state or
political subdivision as follows:
1) A minimum of $40 for each calendar day, or portion
thereof, for each worker paid less than the prevailing wage
rate unless the failure to pay was in good faith and, if
so, the error was promptly and voluntarily corrected when
brought to the attention of the contractor or
subcontractor;
2) A minimum of $80 for each calendar day, or portion
thereof, for each worker paid less than the prevailing wage
rate, if the contractor or subcontract has been assessed
penalties within the previous three years for failing to
pay prevailing wage; and,
3) A minimum of $120 for each calendar day, or portion
thereof, for each worker paid less than the prevailing wage
if the Labor Commissioner finds that the violation was
willful.
These penalties are capped at of $100 for each calendar day, or
portion thereof, for each worker paid less than the prevailing
wage.
This bill would also increase the penalty for failing to provide
payroll records in a timely manner to $100 for each calendar
day , or portion thereof, until strict compliance is effectuated.
Hearing Date: June 22, 2011 AB 551
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Senate Committee on Labor and Industrial Relations
This bill also requires that if a contractor or subcontractor
fails to produce certified payroll records within 30 days of
receipt of the written notice, the contractor or subcontractor
may be prohibited 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, unless the failure was due to events
beyond the contractor or subcontractor's control.
This bill prohibits a contractor or subcontractor from
performing a public works project for three years when the
contractor or subcontractor has committed two or more separate
willful prevailing wage violations within a three year period.
This bill would require that the Labor Commissioner put the
names of ineligible contractors for public works projects on the
commissioner's website, rather than published and distributed,
and that this be done at least annually. The Labor Commissioner
must also notify the Contractors' State License Board when the
list is updated.
This bill would also require that the Labor Commissioner added
to the above-described list any contractor who is issued a
debarment order and the commissioner.
COMMENTS
1. Need for this bill?
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 opened
1,352 new cases involving prevailing wage violations. In
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Senate Committee on Labor and Industrial Relations
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 has been collected in that year.
In addition, the 2009 BFE Report notes that the Labor
Commissioner signed Orders 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.
2. Possible Amendments:
As discussed above, current law creates a structure of minimum
and maximum penalties due to the state or a subdivision of the
state for failing to pay prevailing wages. This bill seeks to
quadruple the minimum penalties, but only doubles the maximum
penalties. The end result is that this bill has set a $120
minimum penalty for willfully failing to pay prevailing wages,
but set the maximum penalty amount to $100, creating a
contradiction within the bill.
The Committee may wish to increase the maximum penalty amount
set on page 2, line 6 to $200, which would remove this
contradiction and follow the precedential structure of
existing law.
3. Proponent Arguments :
The sponsor of this bill, State Building and Construction
Trades Council of California (SBCTCC) argue that this bill
will 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
Hearing Date: June 22, 2011 AB 551
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Senate Committee on Labor and Industrial Relations
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 Association of California Construction Managers (ACCM)
supports the general concept of the bill, but believes that a
penalty could still be levied in the event of a good faith
error. ACCM would like to see an amendment that the maximum
fine would be $50 if the violation was due to a good faith
mistake.
4. Opponent Arguments :
The Western Electrical Contractors Association (WECA) opposes
the bill because the organization "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 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.
5. Prior Legislation :
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
law-abiding contractors. This bill was vetoed by Governor
Schwarzenegger.
AB 2002 (de Leon) of 2008 would have increased the penalties
Hearing Date: June 22, 2011 AB 551
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Senate Committee on Labor and Industrial Relations
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.
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.
SUPPORT
State Building and Construction Trades Council (Sponsor)
California Labor Federation, AFL-CIO
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
SUPPORT IF AMENDED
Association of California Construction Managers
OPPOSITION
Construction Employers' Association
Western Electrical Contractors Association
Hearing Date: June 22, 2011 AB 551
Consultant: Gideon L. Baum Page 7
Senate Committee on Labor and Industrial Relations