Under existing law, an action may be brought for nonpayment of wages, fringe benefits, or health and welfare or pension fund contributions.

This bill would, for all contracts entered into on or after January 1, 2018, require a direct contractor, as defined, making or taking a contract in the state for the erection, construction, alteration, or repair of a building, structure, or other work, to assume, and be liable for, specified debt owed to a wage claimant that is incurred by a subcontractor, at any tier, acting under, by, or for the direct contractor for the wage claimants performance of labor included in the subject of the original contract. The bill would authorize the Labor Commissioner to bring an action under specified statutes or in a civil action to enforce this liability, as provided. The bill would also authorize a third party owed fringe or other benefits or a joint labor-management cooperation committee, as defined, to bring a civil action to enforce the liability against a direct contractor under these provisions, as specified. The bill would provide that it does not apply to any work being done by an employee of the state or any political subdivision of the state. The bill would require a subcontractor, upon request from the direct contractor, to provide specified information regarding the subcontractors and third partys work on the project and would provide that the direct contractor could withhold disputed sums upon the subcontractors failure to provide the requested information, as specified. The bill would provide that these obligations and remedies are in addition to any other remedy provided by law. The bill would provide that its provisions are severable.

Under existing law, an action may be brought for nonpayment of wages, fringe benefits, or health and welfare or pension fund contributions.

This bill would, for all contracts entered into on or after January 1, 2018, require a direct contractor, as defined, making or taking a contract in the state for the erection, construction, alteration, or repair of a building, structure, or other work, to assume, and be liable for, specified debt owed to a wage claimant that is incurred by a subcontractor, at any tier, acting under, by, or for the direct contractor for the wage claimants performance of labor included in the subject of the original contract. The bill would authorize the Labor Commissioner to bring an action under specified statutes or in a civil action to enforce this liability, as provided. The bill would also authorize a third party owed fringe or other benefits or a joint labor-management cooperation committee, as defined, to bring a civil action to enforce the liability against a direct contractor under these provisions, as specified. The bill would provide that it does not apply to any work being done by an employee of the state or any political subdivision of the state. The bill would require a subcontractor, upon request from the direct contractor, to provide specified information regarding the subcontractors and third partys work on the project and would provide that the direct contractor could withhold disputed sums upon the subcontractors failure to provide the requested information, as specified. The bill would provide that these obligations and remedies are in addition to any other remedy provided by law. The bill would provide that its provisions are severable.

Under existing law, an action may be brought for nonpayment of wages, fringe benefits, or health and welfare or pension fund contributions.

This bill would, for all contracts entered into on or after January 1, 2018, require a direct contractor, as defined, making or taking a contract in the state for the erection, construction, alteration, or repair of a building, structure, or other work, to assume, and be liable for, specified debt owed to a wage claimant that is incurred by a subcontractor, at any tier, acting under, by, or for the direct contractor for the wage claimants performance of labor included in the subject of the original contract. The bill would authorize the Labor Commissioner to bring an action under specified statutes or in a civil action to enforce this liability, as provided. The bill would also authorize a third party owed fringe or other benefits or a joint labor-management cooperation committee, as defined, to bring a civil action to enforce the liability against a direct contractor under these provisions, as specified. The bill would provide that it does not apply to any work being done by an employee of the state or any political subdivision of the state. The bill would require a subcontractor, upon request from the direct contractor, to provide specified information regarding the subcontractors and third partys work on the project and would provide that the direct contractor could withhold disputed sums upon the subcontractors failure to provide the requested information, as specified. The bill would provide that these obligations and remedies are in addition to any other remedy provided by law. The bill would provide that its provisions are severable.

Under existing law, an action may be brought for nonpayment of wages, fringe benefits, or health and welfare or pension fund contributions.

This bill would would, for all contracts entered into on or after January 1, 2018, require a direct contractor, as defined, making or taking a contract in the state for the erection, construction, alteration, or repair of a building, structure, or other work, to assume, and be liable for, specified debt owed to a wage claimant that is incurred by a subcontractor, at any tier, acting under, by, or for the direct contractor for the wage claimants performance of labor included in the subject of the original contract. The bill would authorize the Labor Commissioner to bring an action under specified statutes or in a civil action to enforce this liability, as provided. The bill would also authorize a third party owed fringe or other benefits or a joint labor-management cooperation committee, as defined, to bring a civil action to enforce the liability against a direct contractor under these provisions, as specified. The bill would provide that it does not apply to any work being done by an employee of the state or any political subdivision of the state. The bill would require a subcontractor, upon request from the direct contractor, to provide specified information regarding the subcontractors and third partys work on the project. project and would provide that the direct contractor could withhold disputed sums upon the subcontractors failure to provide the requested information, as specified. The bill would provide that these obligations and remedies are in addition to any other remedy provided by law. The bill would provide that its provisions are severable.

Under existing law, an action may be brought for nonpayment of wages, fringe benefits, or health and welfare or pension fund contributions.

This bill would require a direct contractor, as defined, making or taking a contract in the state for the erection, construction, alteration, or repair of a building, structure, or other work, to assume, and be liable for, specified debt owed to a wage claimant that is incurred by a subcontractor, at any tier, acting under, by, or for the direct contractor for the wage claimants performance of labor included in the subject of the original contract. The bill would authorize civil actions the Labor Commissioner to bring an action under specified statutes or in a civil action to enforce this liability, as provided. The bill would also authorize a third party owed fringe or other benefits or a joint labor-management cooperation committee, as defined, to bring a civil action to enforce the liability against a direct contractor under these provisions, as specified. The bill would provide that it does not apply to any work being done by an employee of the state or any political subdivision of the state. The bill would require a subcontractor, upon request from the direct contractor, to provide specified information regarding the subcontractors and third partys work on the project. The bill would provide that this remedy is these obligations and remedies are in addition to any other remedy provided by law. The bill would provide that its provisions are severable.

Existing law prohibits a person or his or her agent or officer from issuing in payment of wages due (1) an acknowledgment of indebtedness unless it is negotiable and payable in cash at an established place of business in the state with a specified name and address and at the time of issuance and for at least 30 days thereafter or (2) a thing redeemable in merchandise or otherwise than in money.

This bill would make nonsubstantive changes to those provisions.

CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 1701

Author:(Thurmond)

As Amended Ver:August 28, 2017

Majority vote

Original Committee Reference: L. & E.

SUMMARY: Holds general contractors and subcontractors jointly liable for unpaid wages, including fringe benefits.

The Senate amendments:

1. Narrow those authorized to bring a civil action to enforce the liability against a general contractor under these provisions to a third party owed fringe or other benefits or a joint labor-management cooperation committee.
2. Authorize the Labor Commissioner to bring an action to enforce the liability against a general contractor through either a civil action or the administrative process for disputing unpaid wages.
3. Clarify that the bill would not apply to any work being done by an employee of the state or any political subdivision of the state.
4. Require that, upon request by the general contractor, a subcontractor and any lower tier subcontractors under contract to the subcontractor must provide the following:
   1. Payroll records, which, at a minimum, contain the information required under existing law for paystubs, including wages, hours of work, and deductions. The payroll records must contain information sufficient to apprise the requesting party of the subcontractor's payment status in making fringe or other benefit payments or contributions to a third party on the employee's behalf.
   2. Information that includes the project name, name and address of the subcontractor, contractor with whom the subcontractor is under contract, anticipated start date, duration, and estimated journeymen and apprentice hours, and contact information for its subcontractors on the project.
5. Allow a general contractor to withhold disputed sums upon the subcontractor's failure to provide the requested information.
6. Provide that the provisions of the bill are severable.
7. Establish liability under the provisions of the bill for contracts entered into on or after January 1, 2018.
8. Limit the general contractor's liability to unpaid wages, including any interest owed. This provision specifically excludes penalties and liquidated damages.
9. Only allow property of the general contractor to be attached for the payment of any judgment received under the provisions of the bill after trial.
10. Clarify that nothing in the bill shall be construed to impose liability on a general contractor for anything other than unpaid wages and fringe or other benefit payments or contributions including interest owed.
11. Clarify that an action brought pursuant to the bill shall be filed within one year of the earliest of the following:
    1. An owner recording a notice of completion of a work of improvement within 15 days of the work being completed, as provided by existing law;
    2. An owner recording a notice of continuous cessation of labor on a work of improvement, as provided by existing law; or
    3. Actual completion of the work.

FISCAL EFFECT: None

COMMENTS: Wage theft is a persistent challenge in California. This bill continues, but also departs, from this legislative tradition of fighting against wage theft. First, this measure extends joint liability to both a general contractor and a subcontractor for unpaid wages, similar to what is found in the arena of public works. Again, similar to existing law, this bill clearly defines liability for joint liability, limiting the number of parties which can pursue a civil action and what amounts can be sought.

While Senate amendments clarified that the liability can be addressed through a contract between the subcontractor and subcontractor, this bill does not require a worker or third party to exhaust his or her options before moving on to the general contractor, nor does this measure require the worker or third party to secure a judgment against the subcontractor in order to pursue a joint liability action. Proponents argue that these differences will ensure that unpaid wages will be quickly addressed, while also protecting direct contractors and subcontractors from undue burden.

The sponsor, California Conference of Carpenters, writes, "General contractors have been traditionally held to answer for the defects in the delivery of a project caused by their subcontractor’s errors. By making the general contractor answerable to employees when a subcontractor defaults, AB 1701 makes compliance with payment of wages and benefits part of the project the general contractor must deliver… The General Contractor is the single entity that has the most knowledge of every aspect of the project. They can, for instance, require subcontractors to disclose wage and fringe benefit data to monitor proper payment of wages and fringe benefits. A general contractor can also, like an awarding agency, retain monies owed to its subcontractor pending a review of whether they are complying with applicable law and collective bargaining agreements."

The California Building Industry Association writes, "The problem that this bill purports to remedy is a failure by the management of the carpenter's trust fund to collect contributions from their signatory contractors. But rather than resolving this issue by going after those parties, this bill goes after general contractors who have already paid those subcontractors, requiring them to double pay for those fringe benefits. A requirement that the general contractor must pay twice for the same service can hardly be called a benefit to the general contractor."

Analysis Prepared by: Jennifer Richard / L. & E. / (916) 319-2091 FN: 0001932

 THIRD READING  

Bill No: AB 1701

Author:

:

Vote:

SENATE LABOR & IND. REL. COMMITTEE: 3-1, 6/28/17

AYES: Bradford, Atkins, Jackson

NOES: Stone

NO VOTE RECORDED: Mitchell

SENATE JUDICIARY COMMITTEE: 4-2, 7/18/17

AYES: Jackson, Hertzberg, Monning, Stern

NOES: Moorlach, Anderson

NO VOTE RECORDED: Wieckowski

ASSEMBLY FLOOR: 52-19, 5/11/17 - See last page for vote

SUBJECT:

SOURCE: California Conference of Carpenters

DIGEST:

This bill holds general contractors and subcontractors jointly liable for unpaid wages, including fringe benefits, and authorizes civil actions to enforce the joint liability.

ANALYSIS:

Existing law:

1. Requires, for the purposes of public works projects, that contracts and subcontractors be held jointly and severally liable for all amounts due pursuant to a final order under this chapter or a judgment thereon. The Labor Commissioner shall first exhaust all reasonable remedies to collect the amount due from the subcontractor before pursuing the claim against the contractor. (Labor Code §1743)
2. Requires that, if a final judgment against an employer for nonpayment of wages remains unsatisfied after a period of 30 days after the time to appeal has expired and no appeal is pending, the employer shall not continue to conduct business in this state, including conducting business using the labor of another business, contractor, or subcontractor instead of the labor of an employee, unless the employer has obtained a surety bond and has filed a copy of that bond with the Labor Commissioner. (Labor Code 238)
3. Provides that a client employer shares with a labor contractor all civil legal responsibility and civil liability for all workers supplied by that labor contractor for the payment of wages and the failure to secure valid workers’ compensation coverage. (Labor Code 2810.3)
4. Permits a contractor or subcontractor or worker to file a mechanic’s lien to enforce a claim of wages, including fringe benefits. (Civil Code §§8400, 8416, and 8430)
5. Permits a claim to filed against a contractor’s bond for unpaid wages, including fringe benefits, within six months of a payment delinquency being discovered.
   (Business and Professions Code §§ 7071.5, 7071.6.5 and 7071.11)

This bill extends liability, for contracts entered into on or after January 1, 2018, to a direct contractor for any debt owed to a wage claimant that is incurred by a subcontractor acting under, by or for the direct contractor. Specifically, this bill:

1. Extends liability from a subcontractor at any tier acting under, by, or for the director contractor for any debt owed to a wage claimant or third party on the wage claimant’s behalf for the wage claimant’s performance of labor included in the subject of the contract between the direct contractor and the owner. This liability applies to both public and private work.
2. Limits the liability to any unpaid wage, fringe or other benefit payment or contribution, including interest owed, but explicitly excludes penalties and liquidated damages.
3. Prohibits a direct contractor or any other person from evading or negating the requirements of this section, but explicitly allows a direct contractor or subcontractor at any tier from establishing by contract or enforcing any otherwise lawful remedies against a subcontractor it hires for liability created by the nonpayment of wages.
4. Provides that the Labor Commissioner may enforce the liability against a direct contractor through either a civil action or the administrative process for disputing unpaid wages (frequently referred to as a Berman Hearing).
5. Limits enforcement of direct contractor liability through civil action to the Labor Commissioner, a joint labor-management cooperation committee, or a third party which is owed fringe or benefit payments.
6. Requires, for private works, that civil actions be filed within one year of the earliest of the following:
   1. An owner recording a notice of completion of a work of improvement within 15 days of the work being completed, as provided by existing law;
   2. An owner recording a notice of continuous cessation of labor on a work of improvement, as provided by existing law; or
   3. Actual completion of the work.
7. Requires that, upon request by a direct contractor to a subcontractor, the subcontractor and any lower tier subcontractors under contract to the subcontractor must provide the following:
   1. Payroll records, which, at a minimum, contain the information required under existing law for paystubs, including wages, hours of work, and deductions. The payroll records must contain information sufficient to apprise the requesting party of the subcontractor’s payment status in making fringe or other benefit payments or contributions to a third party on the employee’s behalf.
   2. Information that includes the project name, name and address of the subcontractor, contractor with whom the subcontractor is under contract, anticipated start date, duration, and estimated journeymen and apprentice hours, and contact information for its subcontractors on the project.
8. Provides that the joint liability discussed above is in addition to any obligations and remedies otherwise provided by law, and that nothing in this bill alters an owner’s obligation to timely pay his or her direct contractor.
9. Provides that the sections of this bill are severable.

Comments

Wage Theft and AB 1701

As noted in previous analyses, wage theft is a persistent challenge in California. In some industries, such as garment manufacture and childcare, wage theft is virtually an industrial norm, rather than the product of “bad apples” or outliers. In response to this, the Legislature has passed and the Governor has signed multiple bills to curb wage theft and encourage collection of back wages for workers who are victims of wage theft. Most recently, Senator DeLeon authored SB 588 (Chapter 803, Statutes of 2015), which allows the Labor Commissioner to file a lien or levy on an employer’s property if he or she has not paid a judgment of unpaid wages to his or her employees.

AB 1701 continues, but also departs, from this legislative tradition of fighting against wage theft. First, AB 1701 extends joint liability to both a general contractor and a subcontractor for unpaid wages, similar to what is found in the arena of public works. Again, similar to existing law, AB 1701 clearly defines liability for joint liability, limiting the number of parties which can pursue a civil action and what amounts can be sought. Additionally, by clarifying that the liability can be addressed through a contract between the subcontractor and subcontractor, AB 1701 addresses a concern raised in the Senate Labor and Industrial Relations Committee analysis.

However, unlike existing law, AB 1701 does not require a worker or third party to exhaust his or her options before moving on to the general contractor, nor does AB 1701 require the worker or third party to secure a judgment against the subcontractor in order to pursue a joint liability action. Proponents argue that these differences will ensure that unpaid wages will be quickly addressed, while also protecting direct contractors and subcontractors from undue burden.

Related/Prior Legislation

SB 588 (DeLeon, Chapter 803, Statutes of 2015) allowed the Labor Commissioner to file a lien or levy on an employer’s property in order to assist the employee in collecting unpaid wages when there is a judgment against the employer.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

SUPPORT: (Verified 9/5/17)

California Conference of Carpenters (source)

Berkeley City Council

California Labor Federation, AFL-CIO

California-Nevada Conference of Operating Engineers

State Building and Construction Trades Council

OPPOSITION: (Verified 9/5/17)

Aceves Construction & Design, Inc.

Associated Builders & Contractors - Central California Chapter

Associated Builders & Contractors - Northern California Chapter

Associated Builders & Contractors- Southern California Chapter

Associated General Contractors of California

Bell Gardens Chamber of Commerce

Bernadette Suarez, Councilmember, City of Lawndale

Building Industry Association of Fresno/Madera Counties

Building Industry Association of Greater Valley

Building Industry Association of Los Angeles/Ventura Counties

Building Industry Association of Orange County

Building Industry Association of San Diego County

Building Industry Association of Southern California

Building Industry Association of the Bay Area

Building Industry Association, Southern California Baldy View Chapter

Calaveras County Taxpayers Association

California Apartment Association

California Building Industry Association

California Business Properties Association

California Chamber of Commerce

California Chapters of the American Fire Sprinkler Association

California Construction & Industrial Materials Association

California Taxpayer Protection Committee

California Taxpayers Coalition

Camarillo Chamber of Commerce

Cerritos Regional Chamber of Commerce

Chamber of Commerce of the Santa Barbara Region

Civil Justice Association of California

Contra Costa Taxpayers Association

Desert Valleys Builders Association

Eduardo De La Riva, Councilmember, City of Maywood

Federation of California Builders Exchanges

Flex Construction

Fresno Chamber of Commerce

Gateway Chambers Alliance

Greater Coachella Valley Chamber of Commerce

Greater Irvine Chamber of Commerce

Hispanic Chambers of Commerce of San Francisco

Home Builders Association of Kern County

Independent Roofing Contractors of California, Inc.

Innovative Structural Engineering

Judy Nelson, Councilmember, City of Glendora

Los Angeles Area Chamber of Commerce

MCM Construction

Mike Spence, Mayor Pro Tem, City of West Covina

MLC Holdings, Inc.

National Federation of Independent Business – California

North Orange County Chamber of Commerce

North State Building Industry Association

Norwalk Chamber of Commerce

Oceanside Chamber of Commerce

Orange County Business Council

Oxnard Chamber of Commerce

Plumbing-Heating-Cooling Contractors Association of California

Regional Hispanic Chamber of Commerce

Sacramento Regional Builders Exchange

San Diego, Southern California, and Central Valley Chapters of Associated Builders and Contractors

San Gabriel Valley Economic Partnership

Santa Maria Valley Chamber of Commerce

South Gate Chamber of Commerce

Southwest California Legislative Council

Tuolumne County Chamber of Commerce

Valley Industry & Commerce Association

Western Electrical Contractors Association

Yuba-Sutter Chamber of Commerce

ARGUMENTS IN SUPPORT: The sponsor, California Conference of Carpenters, writes, “General contractors have been traditionally held to answer for the defects in the delivery of a project caused by their subcontractor’s errors. By making the general contractor answerable to employees when a subcontractor defaults, AB 1701 makes compliance with payment of wages and benefits part of the project the general contractor must deliver… The General Contractor is the single entity that has the most knowledge of every aspect of the project. They can, for instance, require subcontractors to disclose wage and fringe benefit data to monitor proper payment of wages and fringe benefits. A general contractor can also, like an awarding agency, retain monies owed to its subcontractor pending a review of whether they are complying with applicable law and collective bargaining agreements.”

ARGUMENTS IN OPPOSITION: The California Building Industry Association writes, “The problem that this bill purports to remedy is a failure by the management of the carpenter’s trust fund to collect contributions from their signatory contractors. But rather than resolving this issue by going after those parties, this bill goes after general contractors who have already paid those subcontractors, requiring them to double pay for those fringe benefits. A requirement that the general contractor must pay twice for the same service can hardly be called a benefit to the general contractor.”

ASSEMBLY FLOOR: 52-19, 5/11/17

AYES: Aguiar-Curry, Arambula, Berman, Bloom, Bocanegra, Bonta, Burke, Caballero, Calderon, Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Daly, Eggman, Frazier, Friedman, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gomez, Gonzalez Fletcher, Gray, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Levine, Limón, Low, McCarty, Medina, Mullin, Muratsuchi, Nazarian, Quirk, Reyes, Ridley-Thomas, Rubio, Salas, Santiago, Mark Stone, Thurmond, Ting, Weber, Wood, Rendon

NOES: Acosta, Travis Allen, Bigelow, Brough, Chen, Choi, Fong, Harper, Kiley, Lackey, Maienschein, Mathis, Mayes, Melendez, Obernolte, Quirk-Silva, Steinorth, Voepel, Waldron

NO VOTE RECORDED: Baker, Cervantes, Cunningham, Dahle, Flora, Gallagher, O'Donnell, Patterson, Rodriguez

Prepared by:

9/5/17 17:41:37

**** END ****

SENATE JUDICIARY COMMITTEE

Senator Hannah-Beth Jackson, Chair

2017-2018 Regular Session

Bill No: AB 1701 (Author:Thurmond)

Version: July 10, 2017

Hearing Date: July 18, 2017

Fiscal: No

Urgency: No

Consultant: TSG

SUBJECT

Labor-related liabilities: original contractor

DESCRIPTION

This bill would make director contractors liable for the wages, fringe benefits, or contributions of all workers on a private construction project, in the event that the subcontractor directly employing the workers fails to pay them.

BACKGROUND

Most large, modern construction projects involve a cascading chain of entities, each responsible for providing some element of the overall project, bound together by contracts. At the top of this cascade is the general contractor (also known as a “direct contractor”), who is ultimately responsible for delivering the completed project to the person or business who ordered it built. In the middle are the subcontractors, who agree to perform discrete tasks within the overall project, either by carrying out the task themselves, or divvying up the task into still further pieces and hiring another “tier” of subcontractors to complete those parts. At the far end of the cascade are the workers that the various subcontractors employ to get the job done. If all goes well, those workers are paid promptly for their labor and any fringe benefits they have been promised. If the workers belong to a union, the subcontractor who employed them also sends dues contributions to the corresponding labor trust fund.

This bill is about what happens when all does not go well.

Under current law, if a subcontractor on a private construction project fails to pay all of the wages, fringe benefits, and contributions to which the workers are lawfully entitled, the primary recourse for the workers and the labor trust fund is to seek payment from the subcontractor who stiffed them. Alternatively, the workers may engage in the sometimes lengthy, costly, and not always successful process of trying to impose a mechanics lien on the project. Either way, the workers and the trust funds may find themselves going unpaid for some time or even not getting paid at all. This bill, by contrast, would make the direct contractor liable for any unpaid wages, fringe benefits, or contributions. In this way, the direct contractor becomes the backstop that ensures workers and trust funds are not left holding the bag.

This bill passed out of the Senate Labor and Industrial Relations Committee on a 3 to 1 vote.

CHANGES TO EXISTING LAW

Existing law requires, for the purposes of public works projects, that contractors and subcontractors be held jointly and severally liable for all amounts due pursuant to a final order under this chapter or a judgment thereon. The Labor Commissioner shall first exhaust all reasonable remedies to collect the amount due from the subcontractor before pursuing the claim against the contractor. (Lab. Code Sec. 1743.)

Existing law requires that, if a final judgment against an employer for nonpayment of wages remains unsatisfied after a period of 30 days after the time to appeal has expired and no appeal is pending, the employer shall not continue to conduct business in this state, including conducting business using the labor of another business, contractor, or subcontractor instead of the labor of an employee, unless the employer has obtained a surety bond and has filed a copy of that bond with the Labor Commissioner. (Lab. Code Sec. 238.)

Existing law provides that a client employer shares with a labor contractor all civil legal responsibility and civil liability for all workers supplied by that labor contractor for the payment of wages and the failure to secure valid workers’ compensation coverage. (Lab. Code Sec. 2810.3)

Existing law permits a contractor or subcontractor or worker to file a mechanic’s lien to enforce a claim of wages, including fringe benefits. (Civ. Code Secs. 8400, 8416, and 8430.)

Existing law permits a claim to be filed against a contractor’s bond for unpaid wages, including fringe benefits, within 6 months of a payment delinquency being discovered.
(Bus. & Prof. Code Secs. 7071.5, 7071.6.5 and 7071.11.)

This bill would require a direct contractor making or taking a contract in the state for the erection, construction, alteration, or repair of a building, structure, or other private work, to assume, and be liable for, specified debt owed to a wage claimant or third party on the wage claimant’s behalf that is incurred by a subcontractor, at any tier, acting under, by, or for the direct contractor for the wage claimant’s performance of labor included in the subject of the original contract between the direct contractor and the owner.

This bill specifies that the direct contractor’s liability under its provisions shall extend to any unpaid wage, fringe or other benefit payment or contribution, including interest owed, but shall not extend to penalties or liquidated damages.

This bill would authorize the Labor Commissioner to bring an action under specified statutes or in a civil action to enforce this liability, as provided.

This bill would prohibit a direct contractor or other person from evading, or committing an act that negates, its requirements. This prohibition does not prohibit a direct contractor or subcontractor from establishing by contract or enforcing otherwise lawful remedies against a subcontractor for liability created by acts of a subcontractor at any tier.

This bill would authorize a third party owed fringe or other benefits to bring a civil action to enforce the liability against a direct contractor under these provisions and requires the court to award a prevailing plaintiff in such an action its reasonable attorneys’ fees and costs.

This bill would authorize a joint labor-management cooperation committee to bring a civil action against a direct contractor or subcontractor at any tier for unpaid wages owed to the claimant for performance of private work and requires the court to award a prevailing plaintiff in such an action its reasonable attorneys’ fees and costs.

This bill would require a joint labor-management cooperation committee availing itself of this remedy to provide the direct contractor and subcontractor that employed the wage claimant with at least 30 days’ notice prior to commencement of such an action. The notice must describe the general nature of the claim, but shall not limit the liability of the direct contractor or preclude amendments to encompass additional claimants employed by a subcontractor.

This bill would require an action brought pursuant to its provisions to be filed within one year of the date of completion of the work.

This bill would allow property of a direct contractor to be attached for payment of any judgment received pursuant to its provisions, unless otherwise provided by law.

This bill would provide that it does not apply to any work being done by an employee of the state or any political subdivision of the state.

This bill would require a subcontractor, upon request from a direct contractor, to provide payroll records containing specified information, including information regarding the subcontractor’s and third party’s work on the project and payment status in making fringe or other benefit payments to a third party on the employee’s behalf.

This bill would require a subcontractor, upon request of a direct contractor, to provide the direct contractor specified information about a project. A subcontractor’s failure to comply with this requirement would not relieve a direct contractor from its obligations under this bill.

This bill would provide that the obligations and remedies specified in the bill are in addition to any other remedy provided by law.

This bill would provide that its provisions are severable.

COMMENT

1. Stated need for the bill

According to the author:

The bill is intended to combat the pernicious effects of underground economy employers who fail to pay wages to their employees. The Department of Industrial Relations has estimated that the State of California loses “an estimated $8.4 billion to $28 billion in unpaid income, insurance, and sales taxes” as a result of wage theft and underground economy. The bill also addresses the issue facing third parties owed contributions such as trust funds who must deal with mounting shortfalls from delinquent contributions, which often require reduction of benefits for participants and beneficiaries of their funds.

Holding a direct contractor liable for the wage debts and delinquent contributions of its subcontractor is based on the concept of joint and several liability, a long-standing doctrine recognized by this country’s and state’s jurisprudence. The bill makes the substantive policy choice that where a direct contractor’s subcontractor at any tier defaults on wage or fringe benefit obligations it owes, it is the direct contractor – and not the employee or an entity owed contributions – that should bear the risk of loss. Fault is properly placed with the direct contractor, since it was responsible for hiring the subcontractor that failed to pay wages or fringe benefit contributions.

Indeed, a direct contractor must deliver a project to an owner free of defects, one of which should include defects related to unpaid wages and delinquent contributions. A direct contractor is in the best position to manage a project to avoid these obligations and is empowered by the bill to ask for payroll and project information from a subcontractor at any tier. This information will allow a direct contractor to more effectively monitor its project for compliance with fringe benefit and wage obligations of its subcontractors at any tier.

In support, the California Conference of Carpenters writes:

The intent of this measure is to provide similar protections to construction workers in the private sector that already exist in public works construction. […] AB 1701 establishes the policy determination that the general contractor – not an employee – should bear the risk of loss when a subcontractor at any tier fails to pay agreed upon wages and benefits to that employee.[…] By making the general contractor liable when a subcontractor defaults or simply fails to make lawful wage and benefit payments, AB 1701 makes compliance with payment of wages and benefits part of the project the general contractor must deliver.

In further support, the Western States Drywall/Lathing Industry Labor-Management Cooperation Committee, Inc., writes:

AB 1701 is a better alternative to mechanics liens in that it will encourage direct contractors to hire subcontractors that are responsible and can complete jobs, make payroll, and pay taxes. The underground economy is a serious issue in the construction industry costing California taxpayers billions in unpaid payroll taxes. In many cases, workers go unpaid when subcontractors go out of business or abscond during a project. AB 1701 encourages direct contractors to take responsibility for their subcontractor’s work when wage issues arise, just as they do for any construction defects created by their subcontractors.

2. Amendments taken since the bill was heard in the Labor and Industrial Relations Committee

During consideration of this bill before the Senate Committee on Labor and Industrial Relations, some committee members urged the bill’s proponents and opponents to continue conversations to see whether at least some mutually agreeable compromises could be reached. The resulting discussion did yield a new round of amendments that are reflected in the bill in print. Those amendments can be summarized as follows:

• they clarify that the bill’s terms apply to private sector projects only;
• they eliminate what had been an unrestricted private right of action to enforce the bill; limiting enforcement instead to labor trust funds, the California Labor Commission, and Joint Labor-Management Compliance Committees;
• they require subcontractors to provide payroll and fringe benefit records to the general contractor when requested, in order to make it easier for the general contractor to monitor and verify that payments are being made properly; and
• they require a Joint Labor Management Compliance Committee to provide the general contractor with 30 days’ notice prior to bringing an action against the general contractor, thus giving the general contractor an opportunity to ensure the alleged debts are cleared up before litigation begins.

Referring to these amendments, the sponsor of the bill states that “substantial amendments have been added to provide a clear path to accountability for workplace violations and it offers employers a clear path, without litigation or costly penalties, to compliance.” While acknowledging that some amendments have been taken, the opponents to the bill argue that they do not go far enough and have not addressed key concerns.

3. Remaining opposition to the bill

The amendments taken since the bill left the Senate Committee on Labor and Industrial Relations have moved at least some of the various parties closer to a bill with which they could all live. Nonetheless, significant and fundamental disagreements remain. The primary disputes can be summarized as follows:

1. Paying twice

As a threshold matter, opponents of the bill argue that, if enacted, this bill would sometimes subject direct contractors to paying for labor twice: they would pay a subcontractor for the job, including labor costs, first, and then, if a subcontractor absconds without fully compensating its workers, the direct contractors have to pay that labor cost again.

Proponents of this bill respond that the prospect that direct contractors may have to pay twice will help to ensure that workers and trust funds get paid their due. In the first place, liability to cover unpaid wages, fringe benefits, and contributions will incentivize director contractors to be vigilant to make certain that everyone on their projects is getting paid timely and in full. Second of all, when direct contractors do receive a report that workers have not been paid, they will be swift to respond and put pressure on the subcontractors to resolve the matter quickly, before the general contractor’s liability for those debts is implicated. As the Northwest California Carpenters Regional Council puts it: “[i]t is understandable that general contractors would prefer not to be accountable for the labor costs incurred. That does not mean, however, that leaving workers bearing all the risk of subcontractor malfeasance, incompetence, or bad luck is good public policy.”

1. Exhausting remedies against the subcontractors first

This second issue is the most fundamental sticking point. It relates to what the Labor Commissioner or a Joint Labor Management Committee must do, if anything before going to the direct contractor to recover unpaid wages, benefits, and contributions.

Opponents of the bill – even those willing to accept direct contractor liability for unpaid wages, benefits, and contributions – are adamant that such liability should accrue only after the Labor Commission or the Joint Labor Management Committee has made reasonable efforts to collect from the subcontractor who failed to pay the wages in the first place, as well as from each “tier” of subcontractors up the chain until the direct contractor is reached. This is the structure, they point out, that is used in the public works context. (Lab. Code Sec. 1743(a).) They assert, moreover, that skipping to the top of the chain lets the bad actor off of the hook and reduces the incentive that each subcontractor has to be careful about the subcontractors that the subcontractor hires for the next tier below, since liability for any delinquencies will jump right to the top. As the Construction Employers’ Association puts it: “If the goals of the measure are to penalize unscrupulous employers and level the playing field for law-abiding employers, then the amendments fail to accomplish this by shifting all liability on to direct contractors and none on to subcontractors.”

Some subcontractors also object to the “jump to the top” structure in the bill because of its possible effects on the content of the contracts that direct contractors may demand of their subcontractors. According to this criticism, direct contractors will almost certainly begin requiring additional contractual guarantees, most likely in the form of some kind of indemnification clause, to mitigate against the risks that this bill imposes on them. That could have the effect, some of the subcontractors argue, of pushing up construction costs overall. In the case of subcontractors that work exclusively with union labor, it might make them less competitive. As the California Association of Sheet Metal and Air Conditioning Contractors National Association puts it in a letter opposing the bill: “[g]eneral contractors are businesses and will choose the lower cost option of contracting with non-signatory subcontractors to avoid the potential liability of union trust payments.” (Emphasis in the original.)

The proponents counter that general contractors are uniquely positioned to ensure payment of wages and benefits on a job site. As the sponsor puts it: “the General Contractor is the single entity that has the most knowledge of every aspect of the project.” With the power to demand wage and benefit data from subcontractors, the general contractor can monitor proper payment across the project. The general contractor can also withhold payments when aspects of the project are in dispute, thus giving general contractors a stick by which to require compliance from other parties further down the chain.

Additionally, proponents of the bill note, the general contractor is far better positioned to recover unpaid wages and benefits. As the Southwest Regional Council of Carpenters notes, the remedies available to general contractors to recover on a shortfall by one of their subcontractors include: “due diligence in investigation the solvency of a contractor, obtaining personal guarantees against the subcontractors’ owners, mandating that checks be jointly payable to both the general and subcontractor, and requiring the subcontractor to post a bond. A general contractor also can, like an awarding agency, retain monies to its subcontractors pending a review of whether they are complying with applicable law and collective bargaining agreements.”

As to the impact of the bill’s liability shift on subcontractors, the proponents argue that the primary effect will be to reward good actors. In the words of the Northwest California Carpenters Regional Council: “[i]n an environment of direct contractor liability, subcontractors with superior business and labor management systems will thrive, while subcontractors with poor practices will see market share shrink.” Indeed, the proponents of the bill urge that the bill will not only ensure that workers get paid, but also help to root out the underground economy, which is prevalent in the construction industry.

4. Extension of existing law and legal concepts

Imposing liability on a general contractor for the failure of a subcontractor to pay wages or benefits would be new in the context of California private sector construction projects. Yet the concept has plenty of precedent. The bill is patterned after a Nevada law that has been on the books there since 1931. (Nevada Revised Statute Sec. 608.150.) In the public works context, California already makes general contractors the backstop for unpaid wages and benefits, though that law requires the Labor Commission to make reasonable efforts to recover from subcontractors before reaching the general contractor. (Lab. Code Sec. 1743(a).)

More broadly, the legal concept underpinning AB 1701 emerges from the idea that a general contractor’s responsibility to all workers on the jobsite should not necessarily be limited by the fact that the general contractor did not directly hire the worker. Instead, as the State Building and Constructions Trade Council comments: “[t]he economic reality between employers is increasingly the standard, rather than simply the direct control of a workers’ performance, to further the purposes of labor protection statutes.” In other words, layers of contractual relationships should not shield an entity from the basic responsibility to ensure that workplace rights are upheld when that entity effectively controls the worksite.

5. Shortcomings of mechanics liens

Mechanics liens are an existing mechanism for collecting debts related to a construction project. Anyone supplying materials or labor that improves property and who has not been compensated for those improvements can file to place a mechanics lien on the property. In order to clear the lien, the property owner must pay the underlying debts.

The proponents of this bill acknowledge that mechanics liens are an existing mechanism for accomplishing the same goal as this bill: recovering unpaid wages, benefits, and contributions. Imposing a mechanics lien is a highly technical and detailed process however, and it must be accomplished under tight deadlines: two to three months after completion of the project. In practice, therefore, workers must have an attorney to file a mechanics lien. (Civ. Code Secs. 8400, 8416, and 8430.) Moreover, liens must be filed against each property owner on a project that the unpaid workers helped to build. Put together, these factors mean that mechanics liens are rarely a practical solution for many workers. As the Northern California Carpenters Regional Council writes: “[d]espite the prevalence of wage theft in the construction industry, mechanics liens almost never are filed by or on behalf of unorganized workers.”

6. Committee Amendments

As discussed, there is a fundamental disagreement over whether entities seeking to recover unpaid wages, benefits, or contributions should have to work up the tiers of subcontractors or, as the bill currently allows, should be able to skip straight to the direct contractor. Meanwhile, however, there are other elements of the bill on which the parties basically agree, but some further refining amendments are still useful.

In summary form, those amendments:

• clarify that the direct contractor’s liability under this bill extends no further than unpaid wages, fringe benefits, and contributions, and the interest thereon, and does not include any form of penalty or liquidated damages;
• clarify that only the California Labor Commission, a union trust fund, or a joint labor-management cooperation committee can pursue the direct contractor for the liability created by the bill;
• limit the requirement that a subcontractor provide payroll records to the direct contractor upon request to the first two subcontract “tiers;” and
• permit a direct contractor to withhold as “disputed” all sums owing if a subcontractor does not timely provide payroll records or lower tier subcontractor contact information.

The specific amendments are:

Amendment 1

On page 2, in line 3, after “218.7.” insert:

For contracts entered into on or after January 1, 2018:

Amendment 2

On page 2, in line 12, after “extend” insert:

only

Amendment 3

On page 3, in line 5, after “action.” Insert:

The direct contractor’s liability shall be limited to unpaid wages, including any interest owed.

Amendment 4

On page 3, after line 29, insert:

(4) No other party may bring an action against a direct contractor to enforce the liability created by subdivision (a).

Amendment 5

On page 3, in line 32, strike out “attached for” and insert:

attached, after trial, for

Amendment 6

On page 4, in lines 4 and 5, strike out “subcontractor at any tier, the subcontractor” and insert:

subcontractor, the subcontractor and any lower tier subcontractors under contract to the subcontractor

Amendment 7

On page 4, in lines 16 and 17, strike out “contractor, each subcontractor at any tier on private work” and insert:

contractor to a subcontractor, the subcontractor and any lower tier subcontractors under contract to the subcontractor

Amendment 8

On page 4, in line 31, strike out “law.” and insert:

law, except that nothing in this section shall be construed to impose liability on a direct contractor for anything other than unpaid wages and fringe or other benefit payments or contributions including interest owed.

Amendment 9

On page 4, in line 39, strike out “Code.” and insert:

Code, except that the direct contractor may withhold as “disputed” all sums owing if a subcontractor does not timely provide the information requested under (f)(1) and (f)(2) of this section, until such information is provided.

Support: Berkeley City Council; California Labor Federation, AFL-CIO; California-Nevada Conference of Operating Engineers; Carpenters/Contractors Cooperation Committee; Northern California Carpenters Regional Council; Southwest Regional Council of Carpenters; State Building and Construction Trades Council; Western States Drywall/Lathing Industry Labor-Management Committee, Inc.

Opposition: Aceves Construction & Design, Inc.; Associated Builders & Contractors – Central California Chapter; Associated Builders & Contractors - Northern California Chapter; Associated Builders & Contractors – Southern California Chapter; Associated General Contractors of California; Bell Gardens Chamber of Commerce; Bernadette Suarez, Councilmember, City of Lawndale; Building Industry Association of Fresno/Madera Counties; Building Industry Association of Greater Valley; Building Industry Association of LA/Ventura Counties; Building Industry Association of Orange County; Building Industry Association of San Diego County; Building Industry Association of Southern California; Building Industry Association of the Bay Area; Building Industry Association, Southern California Baldy View Chapter; Calaveras County Taxpayers Association; California Apartment Association; California Association of Sheet Metal and Air Conditioning Contractors National Association; California Building Industry Association; California Business Properties Association; California Chamber of Commerce; California Chapters of the American Fire Sprinkler Association; California Construction & Industrial Materials Association; California Taxpayer Protection Committee; California Taxpayers Coalition; Camarillo Chamber of Commerce; Cerritos Regional Chamber of Commerce; Civil Justice Association of California; Construction Employers’ Association; Contra Costa Taxpayers Association; Desert Valleys Builders Association; Eduardo De La Riva, Councilmember, City of Maywood; Federation of California Builders Exchanges; Flex Construction; Fresno Chamber of Commerce; Gateway Chambers Alliance; Greater Coachella Valley Chamber of Commerce; Greater Irvine Chamber of Commerce; Hispanic Chambers of Commerce of San Francisco; Home Builders Association of Kern County; Independent Roofing Contractors of California, Inc.; Innovative Structural Engineering; Judy Nelson, Councilmember, City of Glendora; Los Angeles Area Chamber of Commerce; MCM Construction; Mike Spence, Mayor Pro Tem, City of West Covina; MLC Holdings, Inc.; National Federation of Independent Business – California; North Orange County Chamber of Commerce; North State Building Industry Association; Norwalk Chamber of Commerce; Oceanside Chamber of Commerce; Orange County Business Council; Oxnard Chamber of Commerce; Plumbing-Heating-Cooling Contractors Association of California; Regional Hispanic Chamber of Commerce; Sacramento Regional Builders Exchange; San Diego, Southern California, and Central Valley Chapters of Associated Builders and Contractors; San Gabriel Valley Economic Partnership; Santa Maria Valley Chamber of Commerce; South Gate Chamber of Commerce; Southwest California Legislative Council; The Chamber of Commerce of the Santa Barbara Region; Tuolumne County Chamber of Commerce; Valley Industry & Commerce Association; Western Electrical Contractors Association; Yuba-Sutter Chamber of Commerce

HISTORY

Source: California Conference of Carpenters

Related Pending Legislation: None known

Prior Legislation:

AB 1897 (Hernández, Chapter 728, Statutes of 2014) required a client employer, defined as “a business entity that obtains or is provided workers to perform labor within the usual course of business from a labor contractor” to share with a labor contractor all civil legal responsibility and civil liability for all workers supplied by that labor contractor for the payment of wages and the failure to obtain valid workers’ compensation coverage. It also prohibited a client employer from shifting to the labor contractor legal duties or liabilities under workplace safety provisions with respect to workers provided by the labor contractor.

AB 2288 (Cedillo, 2012) would have extended liability for unpaid wages, fringe benefits, and contributions to direct contractors, much like this bill. AB 2288 died in the Assembly Committee on Labor and Employment.

Prior Vote:

Senate Labor and Industrial Relations Committee (Ayes 3, Noes 1)

Assembly Floor (Ayes 52, Noes 19)

Assembly Labor and Employment Committee (Ayes 6, Noes 1)

**************

SENATE COMMITTEE ON LABOR AND INDUSTRIAL RELATIONS

Senator Steven Bradford, Chair

2017 - 2018 Regular

Bill No: AB 1701 Hearing Date: June 28, 2017

Subject: Labor-related liabilities: original contractor

KEY ISSUE

Should the Legislature hold general contractors and subcontractors jointly liable for unpaid wages, including fringe benefits, and authorize civil actions to enforce the joint liability?

ANALYSIS

Existing law:

1. Requires, for the purposes of public works projects, that contracts and subcontractors be held jointly and severally liable for all amounts due pursuant to a final order under this chapter or a judgment thereon. The Labor Commissioner shall first exhaust all reasonable remedies to collect the amount due from the subcontractor before pursuing the claim against the contractor. (Labor Code §1743)
2. Requires that, if a final judgment against an employer for nonpayment of wages remains unsatisfied after a period of 30 days after the time to appeal has expired and no appeal is pending, the employer shall not continue to conduct business in this state, including conducting business using the labor of another business, contractor, or subcontractor instead of the labor of an employee, unless the employer has obtained a surety bond and has filed a copy of that bond with the Labor Commissioner. (Labor Code 238)
3. Provides that a client employer shares with a labor contractor all civil legal responsibility and civil liability for all workers supplied by that labor contractor for the payment of wages and the failure to secure valid workers’ compensation coverage.
   (Labor Code 2810.3)
4. Permits a contractor or subcontractor or worker to file a mechanic’s lien to enforce a claim of wages, including fringe benefits. (Civil Code §§8400, 8416, and 8430)
5. Permits a claim to filed against a contractor’s bond for unpaid wages, including fringe benefits, within 6 months of a payment delinquency being discovered.
   (Business and Professions Code §§ 7071.5, 7071.6.5 & 7071.11)

This Bill:

1. Requires a direct contractor, as defined, making or taking a contract in the state for the erection, construction, alteration, or repair of a building, structure, or other work, to assume, and be liable for, specified debt owed to a wage claimant that is incurred by a subcontractor.
2. Extends liability to any wage, fringe or other benefit payment or contribution, including interest thereon, and the state tax payment owed to a wage claimant or third party on the wage claimant’s behalf, but shall not extend to penalties or liquidated damages unless otherwise provided by law.
3. Prohibits a director contractor from evading, or commit any act that negates, the requirements of this bill.
4. Authorizes civil actions to enforce this liability, as provided. The bill also provides that this remedy is in addition to any other remedy provided by law.

COMMENTS

1. Wage Theft and AB 1701:

As noted in previous analyses, wage theft is a persistent challenge in California. In some industries, such as garment manufacture and childcare, wage theft is virtually an industrial norm, rather than the product of “bad apples” or outliers. In response to this, the Legislature has passed and the Governor has signed multiple bills to curb wage theft and encourage collection of back wages for workers who are victims of wage theft. Most recently, Senator DeLeon authored SB 588 (2015), which allows the Labor Commissioner to file a lien or levy on an employer’s property if he or she has not paid a judgment of unpaid wages to his or her employees.

AB 1701 continues, but also departs, from this legislative tradition of fighting against wage theft. First, AB 1701 extends joint liability to both a general contractor and a subcontractor for unpaid wages, similar to what is found in the arena of public works. However, AB 1701 does not require a worker or third party to exhaust his or her options before moving on to the general contractor, nor does AB 1701 require the worker or third party to secure a judgment against the subcontractor in order to pursue a joint liability action. Second, unlike existing law, AB 1701 appears to prevent general contractors from contracting with their subcontractors in a manner that would address joint liability due to a subcontractor’s failure to pay wages.

Proponents and opponents are currently working on amendments to address the challenges of wage theft in the construction industry, including the theft of an employee’s wage categorized as fringe benefits, in order to improve employer compliance and minimize wage theft in the construction industry. These discussions are currently on-going. At this point, however, no amendments have been finalized.

2. Proponent Arguments:

The sponsor, California Conference of Carpenters, write, “General contractors have been traditionally held to answer for the defects in the delivery of a project caused by their subcontractor’s errors. By making the general contractor answerable to employees when a subcontractor defaults, AB 1701 makes compliance with payment of wages and benefits part of the project the general contractor must deliver… The General Contractor is the single entity that has the most knowledge of every aspect of the project. They can, for instance, require subcontractors to disclose wage and fringe benefit data to monitor proper payment of wages and fringe benefits. A general contractor can also, like an awarding agency, retain monies owed to its subcontractor pending a review of whether they are complying with applicable law and collective bargaining agreements.”

3. Opponent Arguments:

The California Building Industry Association (CBIA) writes, “The problem that this bill purports to remedy is a failure by the management of the carpenter’s trust fund to collect contributions from their signatory contractors. But rather than resolving this issue by going after those parties, this bill goes after general contractors who have already paid those subcontractors, requiring them to double pay for those fringe benefits. A requirement that the general contractor must pay twice for the same service can hardly be called a benefit to the general contractor.”

The Construction Employers’ Association (CEA), writes, “This measure also creates a private right of civil action against general contractors for subcontractor delinquencies up to one year from the date of completion of the work. Under current law, liens must be filed either 90 days from the date of completion or 60 days from recordation of a notice of completion. Among other things, this increases the likelihood that project owners and contractors are able to withhold amounts due to other parties in order to resolve the complaint. Pursuant to this measure, those amounts due will be long gone and there will be virtually no way for a general contractor to collect from a subcontractor, meaning all of the liability will fall directly on the general contractor, not the actual party who failed to pay the trust.”

4. Double Referral:

This bill has been double referred and, if approved by this committee today, it will be sent to the Senate Judiciary Committee for a hearing.

4. Prior Legislation:

SB 588 (DeLeon), Chapter 803, Statutes of 2015, allows the Labor Commissioner to file a lien or levy on an employer’s property in order to assist the employee in collecting unpaid wages when there is a judgment against the employer.

AB 1646 (Steinberg), Chapter 954, Statutes of 2000, holds a contractor and subcontractor jointly and severally liable for all amounts due, including underpaid wages and penalties on public works projects, pursuant to a final order for a violation of the prevailing wage law.

SUPPORT

California Conference of Carpenters (Sponsor)

Berkeley City Council

California Labor Federation, AFL-CIO

California-Nevada Conference of Operating Engineers

State Building and Construction Trades Council

OPPOSITION

Aceves Construction & Design, Inc.

Associated Builders & Contractors – Central California Chapter

Associated Builders & Contractors - Northern California Chapter

Associated Builders & Contractors – Southern California Chapter

Associated General Contractors of California

Bell Gardens Chamber of Commerce

Bernadette Suarez, Councilmember, City of Lawndale

Building Industry Association of Fresno/Madera Counties

Building Industry Association of Greater Valley

Building Industry Association of LA/Ventura Counties

Building Industry Association of Orange County

Building Industry Association of San Diego County

Building Industry Association of Southern California

Building Industry Association of the Bay Area

Building Industry Association, Southern California Baldy View Chapter

Calaveras County Taxpayers Association

California Apartment Association

California Building Industry Association

California Business Properties Association

California Chamber of Commerce

California Chapters of the American Fire Sprinkler Association

California Construction & Industrial Materials Association

California Taxpayer Protection Committee

California Taxpayers Coalition

Camarillo Chamber of Commerce

Cerritos Regional Chamber of Commerce

Civil Justice Association of California

Contra Costa Taxpayers Association

Desert Valleys Builders Association

Eduardo De La Riva, Councilmember, City of Maywood

Federation of California Builders Exchanges

Flex Construction

Fresno Chamber of Commerce

Gateway Chambers Alliance

Greater Coachella Valley Chamber of Commerce

Greater Irvine Chamber of Commerce

Hispanic Chambers of Commerce of San Francisco

Home Builders Association of Kern County

Independent Roofing Contractors of California, Inc.

Innovative Structural Engineering

Judy Nelson, Councilmember, City of Glendora

Los Angeles Area Chamber of Commerce

MCM Construction

Mike Spence, Mayor Pro Tem, City of West Covina

MLC Holdings, Inc.

National Federation of Independent Business – California

North Orange County Chamber of Commerce

North State Building Industry Association

Norwalk Chamber of Commerce

Oceanside Chamber of Commerce

Orange County Business Council

Oxnard Chamber of Commerce

Plumbing-Heating-Cooling Contractors Association of California

Regional Hispanic Chamber of Commerce

Sacramento Regional Builders Exchange

San Diego, Southern California, and Central Valley Chapters of Associated Builders and Contractors

San Gabriel Valley Economic Partnership

Santa Maria Valley Chamber of Commerce

South Gate Chamber of Commerce

Southwest California Legislative Council

The Chamber of Commerce of the Santa Barbara Region

Tuolumne County Chamber of Commerce

Valley Industry & Commerce Association

Western Electrical Contractors Association

Yuba-Sutter Chamber of Commerce

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:AB 1701

Author:(Thurmond)

As Amended Ver:March 23, 2017

Majority vote

SUMMARY: Holds a direct contractor jointly liable for nonpayment of wages, fringe benefits, or health and welfare or pension fund contributions owed to a wage claimant that is incurred by a subcontractor. Specifically, this bill:

1. Requires a direct contractor, as defined, making or taking a contract in the state for the erection, construction, alteration, or repair of a building, structure, or other work, to assume, and be liable for, specified debt owed to a wage claimant that is incurred by a subcontractor, at any tier, acting under, by, or for the direct contractor for the wage claimant's performance of labor included in the subject of the original contract.
2. Authorizes civil actions to enforce this liability, as provided. The bill also provides that this remedy is in addition to any other remedy provided by law.

EXISTING LAW:

1. Allows an action to be brought against an employer for nonpayment of wages, fringe benefits, or health and welfare or pension fund contributions.
2. Holds a contractor and subcontractor jointly and severally liable for all amounts due, including underpaid wages and penalties, pursuant to a final order of the Labor Commissioner for a violation of the prevailing wage law.
3. States that a client employer shall share with a labor contractor all civil legal responsibility and civil liability for all workers supplied by that labor contractor for the payment of wages and the failure to secure valid workers' compensation coverage.

FISCAL EFFECT: None. This bill is keyed non-fiscal by the Legislative Counsel.

COMMENTS: The author asserts, when a subcontractor skips town or files for bankruptcy before paying their employees the wages and benefits they are due, employees have few remedies available to them under existing law. This not only financially imperils a worker and his or her family, but in the case of unpaid contributions to union pension and welfare benefit trust funds, it also diminishes the important safety net these trusts are able to provide all their members.

The author continues that under current law, general contractors are able to look away from some of the disreputable labor practices of their subcontractors without a risk of financial liability. This allows general contractors to enjoy lower labor costs without any consequences. It can also perpetuate the underground economy.

Arguments in Support

The sponsor, California Conference of Carpenters, write, "General contractors have been traditionally held to answer for the defects in the delivery of a project caused by their subcontractor's errors. By making the general contractor answerable to employees when a subcontractor defaults, AB 1701 makes compliance with payment of wages and benefits part of the project the general contractor must deliver… The General Contractor is the single entity that has the most knowledge of every aspect of the project. They can, for instance, require subcontractors to disclose wage and fringe benefit data to monitor proper payment of wages and fringe benefits. A general contractor can also, like an awarding agency, retain monies owed to its subcontractor pending a review of whether they are complying with applicable law and collective bargaining agreements."

The Carpenters/Contractors Cooperation Committee (C/CCC) writes, "In all my time at the C/CCC, I have not encountered a situation where mechanic's liens have helped workers recover their wages, as this is a cumbersome complex process directed at the owner and not the general contractor, who is best suited to guarantee workers are paid correctly and laws are being complied on their project."

C/CCC continues, "This bill is one more tool for enforcement agencies and private stakeholders to utilize as a way to keep the construction industry vibrant and economically healthy. Every day our organization reaches out to non-union general contractors, including major players, to alert them of problematic non-union subcontractors with proven records of hundreds of thousands of dollars in wage theft, of criminal premium fraud and grand theft convictions, or repeat offenses, and these general contractors choose to look away and ignore this because they have no skin in the game. They figure it's not their problem, they can get the benefits of cheap labor without any consequences, even though it's taking place on their project where they are financially benefitting. As a result, they are complicit in fomenting the underground economy. When general contractors realize they will be held liable for their cheating subcontractors, they will take extra precautions to hire responsible subcontractors. This will benefit honest contractors, workers and their families, tax-payers and the public as a whole."

Arguments in Opposition

The California Building Industry Association (CBIA) writes, "The problem that this bill purports to remedy is a failure by the management of the carpenter's trust fund to collect contributions from their signatory contractors. But rather than resolving this issue by going after those parties, this bill goes after general contractors who have already paid those subcontractors, requiring them to double pay for those fringe benefits. A requirement that the general contractor must pay twice for the same service can hardly be called a benefit to the general contractor."

CBIA continues the law already provides trust funds and laborers with remedies, including mechanics liens and Labor Code section 2810.3. There has been no case made that these are inadequate to address the problem. Moreover, where the general contractor is a related entity to the property owner, this bill subjects the same parties to a kind of double jeopardy by adding a new private right of action to these other remedies along with lien rights against the general contractor without any of the due process protections inherent in these other remedies. Finally, although it is claimed that this measure is needed because a subcontractor may file bankruptcy, AB 1701 does not condition the general contractor's liability on that event or even a requirement that the trust funds exhaust their remedies in pursuing payment from the subcontractor first."

The Construction Employers' Association (CEA), writes, "This measure also creates a private right of civil action against general contractors for subcontractor delinquencies up to one year from the date of completion of the work. Under current law, liens must be filed either 90 days from the date of completion or 60 days from recordation of a notice of completion. Among other things, this increases the likelihood that project owners and contractors are able to withhold amounts due other parties in order to resolve the complaint. Pursuant to this measure, those amounts due will be long gone and there will be virtually no way for a general contractor to collect from a subcontractor, meaning all of the liability will fall directly on the general contractor, not the actual party who failed to pay the trust."

Analysis Prepared by: Jennifer Richard / L. & E. / (916) 319-2091 FN: 0000246

Date of Hearing: May 3, 2017

ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT

Tony Thurmond, Chair

ABPCA Bill Id:AB 1701 (

Author:Thurmond) – As Amended Ver:March 23, 2017

SUBJECT: Labor-related liabilities: original contractor

SUMMARY: Holds a direct contractor jointly liable for nonpayment of wages, fringe benefits, or health and welfare or pension fund contributions owed to a wage claimant that is incurred by a subcontractor. Specifically, this bill:

1. Requires a direct contractor, as defined, making or taking a contract in the state for the erection, construction, alteration, or repair of a building, structure, or other work, to assume, and be liable for, specified debt owed to a wage claimant that is incurred by a subcontractor, at any tier, acting under, by, or for the direct contractor for the wage claimant’s performance of labor included in the subject of the original contract.
2. Authorizes civil actions to enforce this liability, as provided. The bill also provides that this remedy is in addition to any other remedy provided by law.

EXISTING LAW:

1. Allows an action to be brought against an employer for nonpayment of wages, fringe benefits, or health and welfare or pension fund contributions.
2. Holds a contractor and subcontractor jointly and severally liable for all amounts due, including underpaid wages and penalties, pursuant to a final order of the Labor Commissioner for a violation of the prevailing wage law.
3. States that a client employer shall share with a labor contractor all civil legal responsibility and civil liability for all workers supplied by that labor contractor for the payment of wages and the failure to secure valid workers’ compensation coverage.

FISCAL EFFECT: None. This bill is keyed non-fiscal by the Legislative Counsel.

COMMENTS: The author asserts, when a subcontractor skips town or files for bankruptcy before paying their employees the wages and benefits they are due, employees have few remedies available to them under existing law. This not only financially imperils a worker and his or her family, but in the case of unpaid contributions to union pension and welfare benefit trust funds, it also diminishes the important safety net these trusts are able to provide all their members.

The author continues that under current law, general contractors are able to look away from some of the disreputable labor practices of their subcontractors without a risk of financial liability. This allows general contractors to enjoy lower labor costs without any consequences. It can also perpetuate the underground economy.

Arguments in Support

The sponsor, California Conference of Carpenters, write, “General contractors have been traditionally held to answer for the defects in the delivery of a project caused by their subcontractor’s errors. By making the general contractor answerable to employees when a subcontractor defaults, AB 1701 makes compliance with payment of wages and benefits part of the project the general contractor must deliver… The General Contractor is the single entity that has the most knowledge of every aspect of the project. They can, for instance, require subcontractors to disclose wage and fringe benefit data to monitor proper payment of wages and fringe benefits. A general contractor can also, like an awarding agency, retain monies owed to its subcontractor pending a review of whether they are complying with applicable law and collective bargaining agreements.”

The Carpenters/Contractors Cooperation Committee (C/CCC) writes “In all my time at the C/CCC, I have not encountered a situation where mechanic’s liens have helped workers recover their wages, as this is a cumbersome complex process directed at the owner and not the general contractor, who is best suited to guarantee workers are paid correctly and laws are being complied on their project.”

C/CCC continues, “This bill is one more tool for enforcement agencies and private stakeholders to utilize as a way to keep the construction industry vibrant and economically healthy. Every day our organization reaches out to non-union general contractors, including major players, to alert them of problematic non-union subcontractors with proven records of hundreds of thousands of dollars in wage theft, of criminal premium fraud and grand theft convictions, or repeat offenses, and these general contractors choose to look away and ignore this because they have no skin in the game. They figure it’s not their problem, they can get the benefits of cheap labor without any consequences, even though it’s taking place on their project where they are financially benefitting. As a result, they are complicit in fomenting the underground economy. When general contractors realize they will be held liable for their cheating subcontractors, they will take extra precautions to hire responsible subcontractors. This will benefit honest contractors, workers and their families, tax-payers and the public as a whole.”

Arguments in Opposition

The California Building Industry Association (CBIA) writes, “The problem that this bill purports to remedy is a failure by the management of the carpenter’s trust fund to collect contributions from their signatory contractors. But rather than resolving this issue by going after those parties, this bill goes after general contractors who have already paid those subcontractors, requiring them to double pay for those fringe benefits. A requirement that the general contractor must pay twice for the same service can hardly be called a benefit to the general contractor.”

CBIA continues the law already provides trust funds and laborers with remedies, including mechanics liens and Labor Code section 2810.3. There has been no case made that these are inadequate to address the problem. Moreover, where the general contractor is a related entity to the property owner, AB 1701 subjects the same parties to a kind of double jeopardy by adding a new private right of action to these other remedies along with lien rights against the general contractor without any of the due process protections inherent in these other remedies. Finally, although it is claimed that this measure is needed because a subcontractor may file bankruptcy, AB 1701 does not condition the general contractor’s liability on that event or even a requirement that the trust funds exhaust their remedies in pursuing payment from the subcontractor first.”

The Construction Employers’ Association (CEA), writes, “This measure also creates a private right of civil action against general contractors for subcontractor delinquencies up to one year from the date of completion of the work. Under current law, liens must be filed either 90 days from the date of completion or 60 days from recordation of a notice of completion. Among other things, this increases the likelihood that project owners and contractors are able to withhold amounts due other parties in order to resolve the complaint. Pursuant to this measure, those amounts due will be long gone and there will be virtually no way for a general contractor to collect from a subcontractor, meaning all of the liability will fall directly on the general contractor, not the actual party who failed to pay the trust.”

Previous Legislation

AB 1897 (Hernández), Chapter 728, Statutes of 2014. Among other provisions, states that a client employer shall share with a labor contractor all civil legal responsibility and civil liability for all workers supplied by that labor contractor for the payment of wages and the failure to secure valid workers’ compensation coverage.

AB 1646 (Steinberg), Chapter 954, Statutes of 2000. Among other provisions, holds a contractor and subcontractor jointly and severally liable for all amounts due, including underpaid wages and penalties, pursuant to a final order of the Labor Commissioner for a violation of the prevailing wage law.

REGISTERED SUPPORT / OPPOSITION:

Support

California Conference of Carpenters

California-Nevada Conference of Operating Engineers

Carpenters/Contractors Cooperation Committee

Northern California Carpenters Regional Council

State Building and Construction Trades Council, AFL-CIO

Western States Drywall/Lathing Industry Labor-Management Committee, Inc.

Opposition

California Association of Sheet Metal and Air Conditioning Contractors National Association

California Building Industry Association

Construction Employers' Association

Analysis Prepared by: Jennifer Richard / L. & E. /