BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Kevin de Le�n, Chair
AB 2416 (Stone) - Liens: Laborers and Employees
Amended: June 26, 2014 Policy Vote: L&IR 4-1
Urgency: No Mandate: No
Hearing Date: August 4, 2014
Consultant: Robert Ingenito
This bill meets the criteria for referral to the Suspense File.
Bill Summary: AB 2416 would, with specified exceptions,
authorize an employee to record and enforce a wage lien upon
real and personal property of an employer, as specified, for
unpaid wages and other compensation owed the employee.
Fiscal Impact:
The Department of Industrial Relations (DIR) indicates
that it would incur first-year costs of $8.5 million to
$8.9 million (special fund) to implement the provisions of
the bill. Ongoing costs would range from $7.9 million to
$8.2 million.
The Secretary of State's Office (SOS) estimates
increased costs of $100,000 annually (General Fund).
Unknown, potentially significant court costs associated
with additional proceedings regarding wage claims.
Background: Under current law, when an employer fails to pay
wages due, the employee has the right to file a claim against
the employer with DIR's Division of Labor Standards Enforcement
(DLSE), which is directed by the Labor Commissioner. After
conducting an investigation, the Labor Commissioner may hold an
administrative conference or hearing, or both. If a party is
dissatisfied with the Commissioner's decision, it can appeal to
the appropriate civil court. When a worker wins a favorable
decision, the process of collecting the award can be difficult
and ineffective. Some employers may have already hidden their
cash assets, declared bankruptcy, or otherwise become
judgment-proof.
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In 2008, the Ford Foundation sponsored a survey of 4,387 workers
in low-wage industries Chicago, Los Angeles and New York City.
The survey found that 26 percent of workers in the sample were
paid less than the legally required minimum wage the prior work
week, and 60 percent of these workers were underpaid by more
than $1 per hour. In addition, 76 percent of the respondents
who worked overtime in the previous week were not paid the
legally required overtime rate by their employers.
The study also notes that minimum wage violation rates varied
widely by industry. For example, some industries, such as
apparel and textile manufacturing and personal and repair
services have minimum wage violation rates that exceed 40
percent, while others, including restaurants, and retail and
grocery stores, have rates of 20 to 25 percent. The study found
that undocumented immigrant women were at the greatest risk of
minimum wage violations. Overall, it estimated that the workers
in low-wage industries Chicago, Los Angeles, and New York City
lose more than $56 million per week due to labor law violations.
A subsequent study by UCLA researchers, published earlier this
year, utilized the data from the 2008 survey, but focused
specifically on Los Angeles County. This study focused on
survey results of 1,815 workers in Los Angeles County, and found
results similar to the national survey: nearly 30 percent of the
workers sampled were paid less than the minimum wage in the
prior work week, and 63 percent of these workers were underpaid
by more than $1 per hour. Based on a full-year work schedule,
Los Angeles County survey respondents lost an average of $2,070
annually out of total earnings of $16,536. The study estimated
that workers in low-wage industries in Los Angeles County lose
more than $26 million per week as a result of employment and
labor law violations.
The California Constitution gives "mechanics, persons furnishing
materials, artisans, and laborers of every class the right to
file a lien upon the property upon which they have bestowed
labor or furnished material for the value of such labor and
material." The state constitution further requires the
Legislature to provide, by law, for the speedy and efficient
enforcement of such liens. The Civil Code sets forth the
obligations, rights, and remedies of those involved in a
construction project. This lien is generally only available to
construction workers (and a few others specially provided for by
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statute) and only allows the worker to place a lien on the
property upon which labor was bestowed. An employee who
performed labor that did not entail construction or making an
improvement to real property - such as service work, for example
- cannot make use of a mechanic's lien.
Proposed Law: This bill would authorize an employee to have a
lien on all property of the employer in California, including
after-acquired property, for the full amount of any wages and
other compensation, penalties, and interest owed to the
employee. Specifically, the bill would, among other things, do
the following:
Provide that the amount of the lien would include unpaid
wages and other compensation required by California law,
penalties available under the Labor Code, interest at the
same rate as for prejudgment interest in this state, and
the costs of filing and service of the lien, but not less
than the amount required by law, including direct wages and
compensation required to be paid to other persons or
entities that would qualify as "employer payments," as
defined.
Provide that a lien may be filed by any person or
entity, including any governmental agency, to which a
portion of an employer's compensation is payable or has
standing under applicable law to maintain a direct legal
action on behalf of the employee.
Provide that a lien on all property of the employer, and
the real property at which the employee performed work,
shall be subject to the following:
o If the property owner is a natural person, the
lien shall not apply to the property owner's principal
residence.
o A lien shall not be claimed by an employee who
is exempt from specified administrative, executive, or
professional exemptions under current law.
o The lien shall not attach if the employer or
property owner has obtained a surety bond or insurance
in an amount adequate to fully satisfy the employee's
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claim, as specified.
o The lien shall not apply to work performed
under a valid collective bargaining agreement, as
specified.
o The lien action may be also be undertaken by
any person or entity to which a portion of an
employee's compensation is payable or that has
standing under applicable law, or that is authorized
by the employee to act on the employee's behalf.
Require the employee, as specified, to provide the owner
of the property with a preliminary written notice of the
intent to record a lien, as specified.
Specify that the lien shall not attach if the employer
receives either a court order or an order from the Labor
Commissioner finding that the employee does not have a
reasonable likelihood of success on the claim. The employee
shall release the lien within 30 days of being provided
with proof of the order.
Provide that the notice of lien shall be executed under
penalty of perjury; shall be permanently extinguished
unless the notice of lien is served on the employer or
property owner within 180 days of the date the employee
ceased working for the employer and shall include specified
information.
Establish timelines and procedures for the commencement
of civil actions to enforce the lien, as specified.
Set forth conditions under which an employer may release
the notice of lien. Requires the employer provide notice to
the employee that the lien should be released and the basis
for that belief, and request that the employee record or
file a release of the notice of lien. If the employee fails
to respond within 30 days of the date of mailing of the
notice, the employer may give notice to the Labor
Commissioner that the employee did not respond, and request
that the Labor Commissioner file or record a release of the
notice of lien, including a copy of the notice of lien and
a certification, made under penalty that the employer
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followed required procedures and that the employee did not
respond.
Provide that if an employee acted unreasonably or in bad
faith is refusing to file a release of lien, the employer
or property owner shall be entitled to recover attorney's
fees and costs, and authorizes the court to issue a fine
against the employee not to exceed $1,000.
Require DIR to report specified information to the
Legislature by January 1, 2019.
Staff Comments: This bill is similar to, but more expansive than
AB 1164 (Lowenthal, 2013), which failed passage in the Assembly.
Specifically, AB 2416 would permit a lien to be placed on
after-acquired property.
The number of liens that would be recorded as a result of the
bill cannot be predicted. Liens could be initiated for a wide
variety of instances, including (among others) unpaid wages,
minimum wage violations, and shift differential pay. DIR's costs
of between $8 million and $9 million annually reflect a variety
of increased workload, including investigation of wage claims,
various administrative duties, and potential rulemaking.
The bill would require SOS accept wage liens filed by employees
or their representatives for unpaid wages that would be filed
against the personal property of employers. The bill references
treating the lien "in the manner, form and place" of filing a
Uniform Commercial Code (UCC) lien filing; however, the specific
contents of the notice are inconsistent with UCC filings,
including the requirement for the notice to be signed under
penalty of perjury. The bill introduces conditions and actions
affecting the wage lien that occur outside the SOS's control,
including actions by the Labor Commissioner, that impact the
status of the lien in SOS records.
The provisions that do not conform to UCC processes would
require SOS to develop a wage lien addendum form for both the
initial filing (Form UCC-1) and any subsequent change document
(Form UCC-3). SOS would need to develop new business and
technical rules tailored to this filing such as methods of
receipt, minimum content, etc. Any non-conforming content would
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require manual review for compliance and could not be
incorporated into existing online filing systems. An interface
with the Labor Commission would need to be developed to track
actions and notifications related to the status of the wage
lien. These actions would cost $100k in the first year, with
unknown ongoing costs related to the manual review of
nonconforming content depending on the number of wage liens
filed.
SOS is currently designing and building a new IT system which
will automate all business filings. This project would be
impacted by a nonconforming wage lien processes, such that just
three months of design and development would delay the scheduled
rollout of the project now set for mid-2016 and cost perhaps as
much as $858,000.
Finally, AB 1386 (Committee on Labor and Employment) was enacted
in 2013, and permits the Labor Commissioner to place a lien on
an employer's property within the State after a final order has
been issued. This bill took effect at the beginning of 2014.