REPORT OF THE CHIEF LEGISLATIVE ANALYST

DATE: August 12, 2010 .

TO: Honorable Members of the Infonnation Technology and Government Affairs Committee

FROM:

SUBJECT:

,;V_ . --;.--

Gerry F. Mille r I Chief Legislativ~ Analyst

Council File No: 1 0-0002-S49 Assignment No: 1 0-05-0493

Revised Resolution to SUPPORT AB 2187 (Arambula) .

CLA RECOMMENDATION: Adopt Revised Resolution to include in the City's 2009-2010 State Legislative Program SUPPORT for AB 2187 (Arambula) which increases penalties for wage theft violations.

SUMMARY Resolution (Alarc6n-Reyes), introduced May 14, 2010, describes a recent UCLA study that found that in Los Angeles, 30 percent of low-wage workers are not paid minimum wage and 80 percent are not paid overtime. The Resolution argues that lost wages harm the individual worker and the local economy and that State and federal law are unable to prevent thousands of wage theft violations. AB 2187 would increase penalties for willful failure to pay wages owed to employees to address this problem. The Resolution therefore recommends that the City support AB 2187.

BACKGROUND According to a report by the UCLA Institute for Research on Labor and Employment, Los Angeles County has an especially high rate of workplace violations, in areas such as minimum wage, overtime pay, late payment, and tip stealing. Upon surveying 1,815 low-wage workers in Los Angeles County, researchers found that nearly 30 percent were paid less than the minimum wage and of those that worked more than 40 hours in a week, 80 percent were not paid the legally required overtime rate. The report recommends the strengthening of government enforcement of labor laws through implementing stricter penalties, updating legal standards including raising the minimum wage, and establishing equal status for illegal immigrants.

AB 2187 was introduced to strengthen the fines and penalties associated with the non-payment of employee wages. The bill declares that such provisions have not been addressed in decades and lag behind other jurisdictions. In addition, the bill states that by including specific language concerning wage theft, the State will affirm the seriousness of the issue, sending a clear message to prosecutors to aggressively pursue violators.

AB 2187 amends the California Labor Code by imposing a $1,000-$ 10,000 fine and/or a six month maximum jail term on any employer, including an officer, agent, or employee that who having the ability to pay, fails to pay .'all wages owed to an .. employee that has been terminated or resigned within 90 days of the wage due date. The bill fmi her requires an employer guilty under

AB 2187 CLA Report 2

this provision to pay restitution to the affected employee and to reimburse the prosecuting authority for all reasonable costs of prosecution.

Existing law states that the failure to pay wages due is a violation of the California Labor Code and carries criminal misdemeanor penalties. Proponents of AB 2187 such as the California Rural Legal Assistance Foundation (CRLAF), which sponsored the bill, argue that current law is inadequate at effectively preventing wage theft because it does not: (1) impose additional penalties if an employer fails to pay wages due within a certain period of time, (2) impose a significant fine, (3) require restitution, or ( 4) require the reimbursement of prosecution costs. Supporters assert that under current law, the Division of Labor Standards Enforcement is underperfonning, citing only 216 employers for wage violations and collecting only $230,154 out of a total of $650,550 in citations in 2009.

Opponents, including the California Chamber of Commerce, argue that AB 2187 could criminalize employers with legitimate disputes over wage claims. Under the California Labor Code, the Division of Labor Standards Enforcement is chartered with the duty of adjudicating nonpayment wage claims. Opponents argue that these investigations are often not resolved within 90 days and would be unfairly impacted by AB 2187. Furthetmore, the bill could influence an employer's decision not to defend an employment related lawsuit for risk of exposing itself to criminal prosecution.

A revised resolution is attached.

DEPARTMENTS NOTIFIED N/A

BILL STATUS 3/4/10 3/24/10 4/8/10 4/21110 5/6110 5/6/10 5/20/10 6/24/10 8/3/10

Referred to Com. on Labor and Employment (L. & E.) Amended. Passed Com. on L. & E., to Com. on Appropriations (APPR) Passed Com. on APPR. Passed Assembly. In Senate. To Com. on Rules (RLS.) Refened to Com. on Labor and Industrial Relations (L. & I.R.) Passed L. & I.R. Referred to Com. on APPR. To third reading.

~ An

Attachment: I . Revised Resolution. 2. AB 2187.

RESOLUTION

WHEREAS, any official position of the City of Los Angeles with respect to legislation, rules, regulations, or policies proposed to or pending before a local, state or federal govemmental body or agency must have first been adopted in the form of a Resolution by the City Council with the concurrence of the Mayor; and

WHEREAS, every day in Los Angeles contractors, business owners, and individuals employ hard working men and women, but don't pay them their just wages; and

WHEREAS, a recent report by the UCLA Institute for Research on Labor and Employment found that in Los Angeles County, nearly 30% of low-wage workers are not paid the minimum wage and 80% are not paid the legal overtime rate, totaling $26.2 million dollars in lost wages per week; and

WHEREAS, these lost wages harm the individual worker as well as the local economy; and

WHEREAS, wage theft violations occur by the thousands every week regardless of state and federal laws; and

WHEREAS, currently pending in the State Legislature is a bill, AB 2187 (Arambula), which would increase penalties for employers that fail to pay all wages owed to an employee including establishing a misdemeanor penalty punishable by a maximum $10,000 fine or imprisonment, as well payment of restitution to the employee; and

WHEREAS, the Los Angeles City Council approved the development of a similar ordinance (CF 09-2642) in November 2009;

NOW, THEREFORE, BE IT RESOLVED, with the concurrence ofthe Mayor, that by the adoption of this Resolution, the City of Los Angeles hereby includes in its 2009-2010 State Legislative Program SUPPORT of AB 2187 (Arambula), which would increase penalties for willful failure to pay wages including establishing a misdemeanor penalty punishable by up to $10,000 or imprisonment as well as restitution to the employee.

Crill

AMENDED IN ASSEMBLY MARCH 24, 2010

CALI FORN I A LEG ISLATUR E- 2009-10 REGULAR SESSION

ASSEMBLY BILL No. 2187

Introduced by Assembly Member Arambula

February 18, 20 I 0

An act to add Section 1199.6 to the Labor Code, relating to employment.

LEGISLATIVE COUNSEL'S DIGEST

AB 2187, as amended, Arambula. Employment : payment of wages. Existing law makes it a misdemeanor for a person or employer who,

having the ability to pay, willfully refuses to pay wages--te due to a cun·ent employee, an employee who has resigned, or an employee who has been discharged. Under existing law, a persofl foufld guilty of this erime must pay an aggrieved employee has the right to restitution---te the employee to whom for unpaid wages are ovted. Existing law also imposes civil penalties against a person or employer who wrongfu lly fails to pay wages.

This bill wou ld create a separate prohibition against a person or an employer who, having the ability to pay, willfully fails to pay all wages due to an employee who has been discharged or who has quit within 90 days of the date of the wages becoming due and would impose additional crimina l penalties for such conduct. The bill would also require a person or employer who violates these provisions to pay restitution in an amount equal to the amount of unpaid wages to the aggrieved employee and prosecution costs, upon conviction becoming final.

Because this bill wou ld create a new crime, it would impose a state-mandated local program.

98

AB 2187 -2-

The Ca lifornia Constitution requires the state to reimburse local agencies. and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specifi ed reason .

Vote: majority. Appropriation: no . Fisca l committee: yes. State-mandated local program: yes .

The people of the State of California do enact as follows:

J SECTION J. The Legislature finds and declares the follow ing: 2 (a) Many crimina l fi nes and other penalties and California's 3 statutory provisions that relate to the payment of wages have not 4 been strengthened in decades and lag behind other jurisdictions, 5 which have both increased criminal penalties and enacted civil 6 remedies to encourage employers to pay wages promptly when 7 due. 8 (b) The development of a--s-ffigle statutory scheme addressing 9 the theft of wages and imposing significant penalties for

10 comm itting such theft sends an appropriate message to prosecutors 11 to aggressive ly pursue violators and ensures that restitution of 12 unpaid wages to aggr ieved employees is a centra l focus of 13 prosecutions fo r theft of wages. 14 SEC. 2 . Section 1199.6 is added to the Labor Code, to read: 15 1199.6. (a) In addition to any other penalty imposed, an 16 employer or other person acting either individually or as an officer, 17 agent, oc employee of another person is gui lty of a misdemeanor I 8 and is puni shable by a fine of not less than one thousand dollars I 9 ($ 1 ,000) and not more than ten thousand dollars ($1 0,000), or by 20 imprisonment in a county jail for not more than six months, or by 2 I both, who, having the ability to pay, willfully fails to pay all wages 22 due to an employee who has been discharged or who has quit 23 within 90 days of the date that those wages became due. 24 (b) Upon a fil'lding oft! violation ofsubdivisiol'l (a), the violatil'lg 25 employer or person shall pay restitutiol'l to the aggrieved employee 26 (b) An employer or other person guilty ofa misdemeanor under 27 subdivision (a) shall pay, in addition to any criminal fines, 28 restitution to the aggrieved employee in an amount equal to the 29 tota l amount of unpaid wages.

98

-3- AB 2187

1 (c) An employer or person who violates subd ivision (a), upon 2 conviction becoming final and unappealab le, shall pay all 3 reasonable costs of prosecution to the entity that prosecutes. For 4 purposes of th is subdivision, "conviction" means a verdict of guilty 5 or a plea of gui lty or nolo contendere . 6 SEC. 3. No reimbursement is required by this act pursuant to 7 Section 6 of Artic le XIII B of the California Constitution because 8 the only costs that may be incurred by a loca l agency or school 9 district will be incurred because this act creates a new crime or

I 0 infraction, eliminates a crime or infraction , or changes the penalty I I for a crime or infraction, within the meaning of Section 17556 of 12 the Government Code, or changes the definition of a crime within 13 the meaning of Section 6 of Article Xlll B of the California 14 Const itution.

0

98