BILL ANALYSIS �
AB 1855
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Date of Hearing: May 2, 2012
ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT
Sandre Swanson, Chair
AB 1855 (Torres) - As Proposed to be Amended: May 2, 2012
SUBJECT : Employment: contractors: sufficient funds.
SUMMARY : Extends existing law related to liability for
financially-insufficient contracts to the warehouse industry,
and makes other related changes to existing law. Specifically,
this bill :
1)Extends provisions of current law related to liability for
financially-insufficient contracts to the warehouse industry
(in addition to the industries covered under existing law).
2)Provides that, in order to establish a rebuttable presumption
under current law, a written contract for labor or services
must be made available to an employee upon request.
EXISTING LAW :
1 Prohibits a person or entity from entering into a contract or
agreement for labor or services with a construction, farm
labor, garment, janitorial, or security guard contractor where
the person or entity knows or should know that the contract or
agreement does not include funds sufficient to allow the
contractor to comply with applicable laws governing the labor
or service to be provided.
2)Establishes a rebuttable presumption that there has been no
violation of the law where the contract or agreement is in
writing and meets specified conditions.
3)Authorizes an aggrieved employee to bring an action to recover
the greater of his or her actual damages or $250 per employee
per violation for an initial violation and $1,000 per employee
for each subsequent violation, in addition to injunctive
relief.
FISCAL EFFECT : Unknown
COMMENTS : This bill adds the "warehouse" industry to Labor
Code Section 2810, existing law which relates to liability for
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individuals who enter into contracts for labor or services in
five specified industries that do not include funds sufficient
to comply with labor laws.
Brief Background on Labor Code Section 2810
Senate Bill 179 (Alarcon) of 2003 enacted Labor Code Section
2810, which prohibits a person or entity from entering into a
contract or agreement for labor or services with a construction,
farm labor, garment, janitorial, or security guard contractor
where the person or entity knows or should know that the
contract or agreement does not include funds sufficient to allow
the contractor to comply with applicable laws governing the
labor or service to be provided.
At the time, the author and supporters of the bill argued that
the legislation was necessary to protect workers and law-abiding
employers from employers and contractors that knowingly enter
into contracts and agreements that are financially inadequate to
permit compliance with applicable laws. The purpose of this
bill was to establish state policy regarding financially
insufficient contracts in industries most associated with the
underground economy.
Recent Spotlight on the Warehouse Industry
In recent years, some workers and worker advocates have noticed
an increase in the number of employers who are moving away from
a traditional employment model towards a business model that
utilizes "subcontracted" or "contingent" workers. Much recent
attention has focused on one industry in particular: the
warehouse and logistics industry, especially in the Inland
Empire region of Southern California.
Recently, there has been much focus on warehouse workers in the
logistics industry (particularly in Riverside and San Bernardino
counties) as the new "frontier" in terms of the subcontracted
employment model. A recent report described the problem as
follows:
"An increasing number of Inland Empire workers are living
with the financial instability of temporary employment.
More than 53,000 people were hired by the region's
temporary employment industry in 2007. Many warehouses use
temp agencies as intermediaries to funnel low-wage workers
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into the logistics sector. The proliferation of temp
agencies, which cater to logistics companies, highlights a
systemic problem with the goods movement industry.
Temporary warehouse workers frequently work side by side
with direct-hire employees; they are often paid less, work
less hours, and suffer the additional economic burden of
job insecurity. The lack of full-time permanent employment
means that many of these workers are left stranded on the
bottom rung of the middle-class career ladder<1>."
According to some reports, many workers in the industry are
essentially hired on a day-to-day basis and are paid
"piece-rate" earnings (paid by the load or shipping container).
Some workers have reported minimum wage and overtime violations.
Health and safety issues are also a particular concern for
subcontracted workers in this industry. "�W]arehouse workers
are forced to work under extreme time pressure. Many workers
must complete tasks under strict deadlines and are encouraged to
meet quotas by piece-rate like payment systems that compensate
them by the number of tasks completed in a certain time period.
The clock is always ticking and workers are under constant
pressure to pick up the pace<2>."
A recent survey of 101 workers conducted by Warehouse Workers
United indicated the following:
63 workers had been injured on the job, while 83 had
suffered from a job-related illness.
49 workers reported that they had been exposed to
chemicals in the workplace.
35 percent of workers reported ergonomic injuries.
22 percent of workers reported injuries from falls or
other workplace impacts.
74 workers reported excess heat or cold as a problem,
while 48 workers said they lacked an adequate supply of
drinking water<3>.
---------------------------
<1> Bonacich, Ed and Juan David De Lara. "Economic Crisis and
the Logistics Industry: Financial Insecurity for Warehouse
Workers in the Inland Empire." (February 2009), pp. 1-2.
<2> Cornelio, Deogracia and Warehouse Workers United.
"Shattered Dreams and Broken Bodies: A Brief Review of the
Inland Empire Warehouse Industry." (June 2011).
<3> Id.
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Moreover, there are concerns that these same dynamics may
pressure workers to not report accidents. "Part of the reason
that many temp workers feel like they are disposable is because
staffing agencies have high turnover rates?Furthermore, an
outspoken or injured worker can been seen as a distraction and a
drag on productivity that should therefore be terminated<4>."
In recent months, state enforcement agencies have started to
give these issues a closer look as well. In October, the
Division of Labor Standards Enforcement (DLSE) issued more than
$600,000 in penalties for alleged wage and hour violations
against a Riverside County warehousing operation. Earlier, DLSE
had issued citations of $499,000 to a temporary employment
agency that provided workers at the same warehouse.
In response to worker complaints, the Division of Occupational
Safety and Health (DOSH) has begun to target the Inland Empire
warehouse industry with a number of open investigations into
workplace health and safety conditions. Among other things, the
complaints allege exposure to dust, fumes and chemicals, no hand
protection, improperly maintained forklifts, and lack of heat
illness prevention programs<5>.
In addition, a group of workers at a California warehouse have
filed a class-action lawsuit against a logistics company and
three of its subcontractors. The lawsuit alleges that workers
were routinely denied proper wages, were required to work in
dangerous conditions without required breaks, and threatened
with termination when they've complained to supervisors.
Recent Committee Informational Hearing
On February 15, 2012, this Committee conducted an informational
hearing entitled, "Confronting the Challenges of a Subcontracted
Economy: The Experience of Warehouse Workers in the Logistics
Industry as a Case Study." The hearing explored the overall
issue of whether an employment model that relies heavily upon a
"subcontracted" workforce results in a situation in which
workers' rights are adequately protected, and whether
enforcement agencies are able to adequately enforce existing law
to hold responsible parties accountable. The hearing focused
---------------------------
<4> Id.
<5> "Inland Empire's Giant Warehouse Industry Getting a Safety
Spotlight." Cal-OSHA Reporter, Vol. 38, No. 46 (December 2,
2011).
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primarily on the warehouse industry as a case study that has
garnered recent attention. The hearing also examined whether
state policy adequately addresses the situation or whether
policymakers should consider additional regulatory or statutory
changes.
ARGUMENTS IN SUPPORT :
Writing in support of this measure, the California Labor
Federation, AFL-CIO (one of the co-sponsors) states the
following:
"Our economy has become increasingly dependent on
contingent workers. In place of a traditional employment
relationship, many companies now rely on labor contractors,
temporary agencies, and independent contractors. These
relationships not only eliminate traditional employer
obligations, but they also leave workers more vulnerable to
abuse.
The warehouse industry provides a case study of this trend.
The warehouses of the Inland Empire, the largest hub of
goods movement in the nation, employ over 85,000 warehouse
workers moving goods for the largest retailers and
manufacturers in the world, a large percentage of whom are
employed through staffing agencies. These workers remain
with a single employer for years, but without any guarantee
of steady or ongoing work. This trend is expanding to
warehouses across the state, and threatens to erode the
quality of the jobs in the fast-growing industry that
employs over 200,000 people across California.
Recent state investigations found widespread violations of
basic wage and hour protections and health and safety
standards. Workers were denied breaks, paid less than
minimum wage, given fraudulent pay stubs, and compensated
by "group piece rate." Workers participated in those
investigations and the warehouse operators responded by
terminating their contract with the temporary staffing
agency that employed those workers, effectively terminating
the workers who cooperators with state officials.
Wage theft and retaliation are nothing new. The challenge
we face is in enforcing basic labor laws in the face of
these complex levels of subcontracting. The temporary
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agency is the employer of record. Yet these agencies are
really just an intermediary, not responsible for
establishing the conditions in this industry. The labor
practices they utilize are largely established by the
client companies that use them- giant retailers,
manufacturers, and logistics companies. Should the agency
refuse to comply, they can easily be replaced. Unless the
companies actually setting terms and conditions within the
warehouses are held accountable, the quality of these jobs
will continue to decline.
California Labor Code Section 2810 was enacted to address
just this challenge within several other industries. It
prohibits any entity for contracting for labor or services
with a contractor when they know or should have known that
the contract was financially insufficient to comply with
the law. In other words, a contractor will not shield a
company from liability for workers' rights violations if
the contract was clearly insufficient to pay minimum wage.
Section 2810 currently applies to agricultural, garment,
construction, janitorial, and security. �This bill] extends
this protection to warehouse workers.
There is nothing wrong with using a temporary agency to
provide temporary employees. The problem arises when
companies try to use staffing agencies and labor
contractors to shield themselves from their responsibility
to their workers. While that may be a convenience, it
leaves vulnerable workers with little recourse and
undermines the ability of state enforcement agencies to
enforce the law.
�This bill] is aimed at establishing accountability in the
warehouse industry. These can and should be good jobs that
help us rebuild a middle class in this state. This bill
will help us eliminate the underground economy within this
industry by prohibiting financially insufficient contracts.
This levels the playing field for the many companies that
follow the law and gives hope to these workers of a better
life."
ARGUMENTS IN OPPOSITION :
The California Chamber of Commerce, writing in opposition to
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this bill, states the following:
"Under �this bill], any employee engaged in services or
labor for construction, garment, janitorial, security
guards, farm labor, or warehouse could request a copy of
the written contract between the employer and entity that
contracted for the labor or services. This provision in
�this bill] will basically force employers to disclose
their confidential, proprietary information regarding such
items as pricing, which will have a negative impact on
competition and, ultimately, employee wages. If an
employee can obtain a copy of any contract that could be
passed on to an employer's competitor, this will eliminate
the current protections such contracts may potentially
have, such as trade secrets. Specifically, in order to
maintain trade secret status, a business must make sure the
information is: (1) not generally known to the public and
(2) is subject to efforts by the business to maintain its
secrecy. Civil Code section 3426.1(d); See Competitive
Technologies v. Fujitsu Limited, 286 F.Supp.2d 1118,
1147-1148 (N.D. Cal. 2003) (recognizing the potential for a
company's pricing method to qualify as a trade secret if
kept confidential). By forcing employers to provide
employees with a copy of the contract, �this bill] is
requiring employers to make the impossible choice of
providing a copy of the contract and thereby eliminating
any future claim that the information contained therein is
a "trade secret"; or, refuse to provide the contract and
thereby abandon the right to enjoy the rebuttable
presumption under Labor Code section 2810 that �this bill]
seeks to amend. Employers should not be forced to give up
one legal right in order to obtain the protection of
another.
Moreover, removing the confidentiality of such contracts,
including the pricing of the work, will drive down the cost
of such services and, ultimately, the wages paid to those
employees. If a competitor can get a copy of another
company's contract, that competitor has a significant
advantage in the bidding process and can easily undercut
other companies' offers. Reducing the contract price for
such services will undoubtedly reduce the wages for the
employees who perform the services.
Also concerning is the potentially broad application of
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�this bill] with regard to 'warehouse' work and employees.
For example, it is ambiguous as to whether the employee at
issue has to be primarily engaged in work that occurs in a
warehouse for the provisions of �this bill] and Labor Code
section 2810 to be triggered, or if warehouse work only
needs to be a minor part of the employee's job.
Additionally, a common definition of 'warehouse' is a place
where goods or merchandise are stored. This common
definition could easily include the back storage room of a
retail establishment or even a restaurant, thereby
potentially applying to delivery service providers to such
establishments. Further clarification of these terms is
necessary so an employer has proper notice of when the
protections and obligations under Labor Code section 2810
will be triggered."
The California Staffing Professionals (CSP) and the American
Staffing Association (ASA) oppose the portion of the bill that
would require a contracted employer to make available the
contract with its clients to employees upon request. They state
that the contract is proprietary and contains information
concerning pricing which, if disclosed, could distort the
marketplace for services and create an unfair competitive
advantage for its competitors. However, CSP and ASA state that
the "staffing industry supports better enforcement of existing
wage and hour laws and is not opposed to adding warehouse work
to the existing provisions of Labor Code Section 2810."
REGISTERED SUPPORT / OPPOSITION :
Support
California Employment Lawyers
California Labor Federation, AFL-CIO (co-sponsor)
California Rural Legal Assistance Foundation
California Teamsters Public Affairs Council (co-sponsor)
Warehouse Workers United (co-sponsor)
Opposition
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American Staffing Association
Associated Builders and Contractors of California
California Chamber of Commerce
California Chapter of American Fence Association
California Farm Bureau Federation
California Fence Contractors' Association
California Grocers Association
California Independent Grocers Association
California Retailers Association
California Staffing Professionals
Engineering Contractors' Association
Flasher Barricade Association
Marin Builders Association
Plumbing-Heating-Cooling Contractors Association of California
Western Electrical Contractors Association, Inc
Wine Institute
Analysis Prepared by : Ben Ebbink / L. & E. / (916) 319-2091