BILL ANALYSIS �
AB 1741
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Date of Hearing: April 23, 2014
ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT
Roger Hern�ndez, Chair
AB 1741 (Frazier) - As Amended: April 7, 2014
SUBJECT : Public works: prevailing wage rates: wage and penalty
assessments.
SUMMARY : Amends existing law related to civil wage and penalty
assessments for prevailing wage violations. Specifically, this
bill :
1)Expands current law which allows a contractor or subcontractor
to avoid liability for liquidated damages by posting the full
amount of an assessment (including penalties) with the
Department of Industrial Relations (DIR) to also allow the
contractor or subcontractor to post the full amount in the
form of a bond.
2)Specifies that bond shall be issued by a surety company
admitted to do business in this state and in a form acceptable
to the director of DIR.
3)Requires the director of DIR to prescribe the requirements for
a bond.
4)Makes related and conforming changes.
EXISTING LAW :
1)Provides that after 60 days following the service of a civil
wage and penalty assessment for prevailing wage violations,
the affected contractor or subcontractor shall be liable for
liquidated damages in an amount equal to the wages, or portion
thereof, that still remain unpaid.
2)Provides that if the contractor or subcontractor demonstrates
to the satisfaction of the director of DIR that he or she had
substantial grounds for appealing the assessment or notice
with respect to a portion of the unpaid wages covered by the
assessment or notice, the director may exercise his or her
discretion to waive payment of the liquidated damages with
respect to that portion of the unpaid wages.
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3)Provides that there shall be no liability for liquidated
damages if the full amount of the assessment or notice,
including penalties, has been deposited with DIR within 60
days following service of the assessment or notice, for DIR to
hold in escrow pending administrative and judicial review.
4)Requires DIR to release such funds, plus any interest earned,
at the conclusion of all administrative and judicial review to
the persons and entities who are found to be entitled to such
funds.
FISCAL EFFECT : Unknown
COMMENTS : Under current law, if a wage and penalty assessment
for prevailing wage law violations remains unpaid for a period
of 60 days, the affected contractor or subcontractor is liable
for liquidated damages in an amount equal to the wages that
remain unpaid. The general purpose of this provision is to
encourage prompt payment of wages following an assessment for
violation of the law.
However, current law provides that there shall be no liability
for liquidated damages if the contractor or subcontractor has
deposited the full amount of the assessment (in cash) with DIR
pending administrative and judicial review of the assessment.
This bill proposes to allow the contractor or subcontractor to
post the full amount of the assessment in the form of a bond (in
lieu of cash) in order to avoid liability for liquidated
damages.
Relevant Legislative and Administrative History
Legislation enacted in 2001 (AB 1646) established automatic
liquidated damages for wage and penalty assessments that remain
unpaid for a period of 60 days. This was enacted as part of a
broader measure to replace the prior system of de novo court
review of prevailing wage disputes with a formal administrative
procedure, followed by limited judicial review.
However, following the enactment of the automatic liquidated
damages provision, some contractors raised concerns that this
provision placed them in a difficult situation regarding
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assessments for which they were filing appeals with DIR. For
example, they argued that contractors and subcontractors who
wish to contest a citation with DIR were faced with two choices
- they pay the disputed wages in order to avoid possible
liquidated damage assessments and try to collect the wages from
workers if the contractor or subcontractor prevail at DIR, or,
refuse to pay the disputed wages and risk a liquidated damages
assessment if DIR rules against them. They argued that neither
choice affords the contractor or subcontractor reasonable due
process because they are effectively penalized prior to a
determination of guilt.
These concerns led to the enactment of SB 1352 (Wyland) from
2008 which established the provisions of current law that allow
a contractor to avoid liability for liquidated damages if they
post the full amount of the assessment with DIR in an escrow
account while an administrative appeal is pending.
Earlier versions of SB 1352 would have allowed a contractor to
post any of the following with DIR to avoid liability for
liquidated damages: "cash, a letter of credit, a payment bond,
or negotiable securities" in the amount of wages covered by the
assessment. However, that language was subsequently amended out
of the bill and the enacted version of the bill contained only
the current language requiring the full amount of the assessment
to be posted.
Despite the aforementioned legislative history, on March 30,
2009, the Chief Deputy Director of DIR issued a memorandum in
which he stated that, in lieu of a cash deposit, a contractor
may post a payment bond with DIR as long as the bond satisfied
specified criteria. There is some question regarding whether
DIR had the legal authority to do so in light of the fact that
the enabling legislation (SB 1352) had specifically considered,
but then deleted, the ability to submit payment to DIR in the
form of a bond.
In 2013, when DIR revised its' Public Works Manual, it deleted
the prior references to payment to DIR in the form of a bond.
ARGUMENTS IN SUPPORT :
The author states the following in support of this bill:
"Recently, counsel within DIR opined that without further
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legislative clarity surety bonds are no longer an
acceptable means of collateral as a cash equivalent for
these types of disputes.
DIR's decision to no longer accept a surety bond in these
instances has created a situation where innocent
contractors may face a financial hardship that could result
in the loss of their business. In the construction
industry, cash flow is extremely important in keeping
employees paid and projects going.
In instances where a contractor has been fully exonerated,
it is often difficult to receive reimbursement from the
state in a timely manner. Recent examples of this include
a case where the cash deposit was $93,608.01 and another
case where it was $284,873.21. In both cases, these
amounts were in addition to at least the equivalent amount
already being withheld by the awarding entities from the
general contractor's contract balance.
In both of these cases, the claims against the contractor
were dropped. The task of getting the money back from DIR
took a long period of time in one case and in the other
still has yet to be refunded even though it has been months
since a determination.
Lastly, in cases where there is culpability, the surety
bond carrier is the guarantor of the payment in the event
the contractor is unable to meet its debt obligation. This
ensures that employees who earned but were not paid
prevailing wages are properly paid for their work."
This bill is sponsored by the Associated General Contractors
(AGC), who argues that currently contractors are faced with
having ti post substantial amounts of cash at a time when cash
flow is important. Unnecessarily tying up cash can place
innocent contractors in jeopardy of losing their business or
creating financial hardship. In addition, when a contractor is
fully exonerated, it is often difficult to receive reimbursement
from the state in a timely manner. Even in cases where there is
culpability, the surety bond carrier is the guarantor of the
payment in the event the contractor is unable to meet its debt
obligation. AGC believes this is a common sense solution that
ensures the workers will be paid in the event of an adverse
action while at the same time freeing up cash necessary to
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operate a business.
NOTE ON RECENT AMENDMENTS :
Recent amendments clarify that the bond that must be issued by a
surety company admitted to do business in California. The
amendments also specify that the bond must be "in a form
acceptable" to the director of DIR, and require DIR to prescribe
the requirements for such bonds. These amendments are designed
to allow DIR to establish criteria for such bonds that alleviate
any concerns about collecting against bonds (as opposed to the
posting of cash).
REGISTERED SUPPORT / OPPOSITION :
Support
Associated General Contractors (Sponsor)
California Landscape Contractors Association
California Professional Association of Specialty Contractors
Construction Employers' Association
United Contractors
Opposition
None on file.
Analysis Prepared by : Ben Ebbink / L. & E. / (916) 319-2091