From California Labor and Employment Law Review, Vol. 28, No. 3, May 2014
MCLE Self-Study: Origins and Development of California's Prevailing Wage Requirements and Enforcement Mechanisms*
By John Cumming
This article is available as an online self-study test in our self-study catalog HERE.
Overview: Underlying Purpose and Constitutionality
Prevailing wage requirements, which govern pay standards and other working conditions on public works construction projects, are a subspecies of wage and hour law. Prevailing wage statutes are essentially minimum wage laws,1 albeit far more elaborate and arcane than the minimum wage requirements that govern most other employments. Prevailing wage laws also serve a broader range of objectives than general minimum wage requirements.
Worker protection laws in the United States date back to the nineteenth century, with the regulation of hours and wages on public works predating the establishment of general wage and hour standards in the private sector. Laws with specific health and safety purposes, including the protection of women and children, were able to pass muster. However, the predominant legal view prior to the New Deal was that wage and hour restrictions on private sector employment were an unconstitutional infringement on the freedom of contract included within the due process guarantees of the Fifth and Fourteenth Amendments.3
This view did not extend to the regulation of public employment, including employment on public works. Instead, the state, as a contracting party, was regarded as having the right to prescribe the terms under which it would permit public works to be performed, with contractors in turn having the right to decide whether or not to accept work under such conditions.4
A Legal Day's Work in Statute and Constitution
California's own regulation of employment on public works dates back to an 1868 statute. It provided that "[e]ight hours labor shall constitute a legal day's work" when performed under the authority of state law or under the direction of a public official. It also required that a stipulation to that effect be placed in any contract to which the state, county, or municipality was a party.5 This principle subsequently was incorporated into the Constitution of 1879, in art. XX, § 17, which stated simply that "[e]ight hours shall constitute a legal day's work on all public work."6
In 1902, this constitutional provision was expanded, but then shortened again in 1970 to read: "Worktime of mechanics or workmen on public works may not exceed eight hours a day except in wartime or extraordinary emergencies that endanger life or property." In 1976, this language was moved to its current location in art. XIV, § 2, and there have been no further modifications to the text through the present.
Other Early Requirements, Enforcement Mechanisms, and the First Minimum Wage
Early legislation also addressed other aspects of public works employment. An 1870 law required that "all labor employed on [public] buildings be employed by the day" and that none of this "be done by contract."7 Another 1872 statute made it a felony for anyone who employed laborers upon public works to retain any part of a laborer's wages, i.e. to take "kickbacks."8
In 1897, the Legislature adopted the first minimum wage statute for public works, requiring an across-the-board flat rate of two dollars per day. 9 It made an exception for persons regularly employed by the public entity, i.e. the "own forces" exception to prevailing wages that remains in current law at Cal. Lab. Code § 1771. Another 1897 statute required public works contractors to be bonded and provided for the filing of claims with the contracting agency by any materialman or laborer whom the contractor did not pay.10 An 1899 statute restated and expanded the eight-hour-day requirement by including the emergency exception language that later went into the 1902 amendment to art. XX, § 17 of the state Constitution.11 This statute also required incorporation of the eight- hour limitation into every public works contract, together with a prescribed penalty of ten dollars per worker per day for each violation.12 In addition, contract inspectors were required to report violations so that penalties could be withheld from moneys due under the contract; any public official who failed to fulfill these requirements was subject to criminal sanctions.13 The 1899 statute's requirements were readopted in substantially the same form in 1903 Cal. Stat. 107, albeit with a specific directive to the public agency's contracting agent "to take cognizance of all violations" and report the same to the person responsible for paying the contractor.14
Legislation in 1905 further revised and codified the 1903 statute as Cal. Penal Code § 653c, and also revised and codified the 1872 anti-kickback statute as Cal. Penal Code § 653d.15 In 1919, the legislature adopted a more extensive set of bonding requirements and claim procedures to replace the ones adopted in 1897.16 Then, in 1927, Cal. Penal Code § 653c was amended through the addition of language that: (1) required contractors to document any emergency that required exceeding the eight-hour-day limit, and (2) extended the criminal sanctions to any contractor or subcontractor who violated § 653c.17 The statute was further amended in 1929 to include the first payroll recordkeeping requirement and the first mention of the Department of Industrial Relations (DIR) as a separate monitoring agency.18
Public Wage Rate Act of 1931
Two years later, the legislature repealed the 1897 minimum wage statute and replaced it with California's first general prevailing wage law.19 The Public Wage Rate Act of 1931 required awarding bodies to ascertain and require payment of the "general prevailing rate of per diem wages in the locality in which the work is to be performed, for each craft or type of workman or mechanic needed to execute the contract[.]" It prescribed a ten-dollar-per-worker-per-day penalty for underpayments. It also included the "take cognizance," forfeiture, and withholding requirements from prior statutes. It added a further proviso that, with the exception of the final contract payment, no sums should be withheld, retained, or forfeited without a full investigation by either the awarding body or DIR. The statute also authorized contractor withholding for penalty assessments caused by subcontractors; included the same recordkeeping requirements and criminal sanctions found in Cal. Penal Code § 653c; and defined "public works," "locality," and "general prevailing rate of per diem wages." Regulation of hours remained in Cal. Penal Code § 653c, which was further revised by 1931 Cal. Stats. ch. 1144, to add the investigation proviso and authorization for contractor withholding from subcontractors that were included in the new prevailing wage law.
The refusal of a local water district to carry out its responsibilities under the new Public Wage Rate Act led to a broad-based constitutional challenge against the Act in Metropolitan Water District of Southern California v. Whitsett.20 The three principal contentions the district raised were that: (1) the Act was void for uncertainty; (2) the attendant increased costs for public works construction amounted to the imposition of a tax on local government in violation of Cal. Const. art. XI, § 12; and (3) the Act made an invalid delegation of legislative power [through the regulatory role assigned to awarding bodies].21 The court rejected all three arguments and upheld the Act as constitutional. The court first noted that district officials would be subject to criminal violations for violating or failing to comply with their duties under the Act.22 It then held that terms such as "general prevailing rate of per diem wages," "work of a similar character," and "locality in which the work is performed" were not unconstitutionally vague.23 The court stated that there was no uncertainty about required contractual provisions or the district's investigation and enforcement responsibilities in light of a variety of state and federal cases that had considered similar challenges.24 With respect to the second argument, the court found that the Act was a minimum wage statute rather than a tax, and that it was well within the Legislature's constitutional authority to impose such a condition on subordinate governmental entities.25 Finally, the court rejected the third argument by equating the delegated authority to determine local prevailing wage rates with the authority given to local districts to determine the pay and working conditions of their own employees.26
The Public Wage Act was amended once by the addition of a § 4a, which specified that the Act's penalties and remedies were the sole and exclusive penalties and remedies for any violation by a contractor or subcontractor.27 Two years later, in 1937, all the statutes discussed above were repealed and replaced by a number of provisions in the newly adopted Labor Code. The duty of awarding bodies to take cognizance of violations and withhold payments were moved into §§ 1726 and 1727; the penalty provisions were moved into § 1775; the recordkeeping requirements were moved into § 1776; criminal sanctions were placed in § 1777; and the limitations on hours of work and related penalties for those violations were placed in §§ 1810-16.28
Evolution of Monitoring and Enforcement Provisions Following the Adoption of the Labor Code
As shown above, some of the arcane and sometimes befuddling terminology found in current prevailing wage statutes has been carried down from the nineteenth- and early twentieth-century laws, and is more easily understood in reference to those origins. For example, the "prevailing rate of per diem wages" language in Cal. Lab. Code § 1770 and numerous other statutes hearkens back to some of the earliest statutes requiring laborers on public work to be employed "by the day" and setting the first minimum rate of compensation at two dollars "per day."29 The duty to "take cognizance of all violations," as first expressed in 1903 Cal. Stats. ch. 107, § 2, coupled with the duty to report violations to the person authorized to pay or withhold payments from the contractor,30 can be readily understood in that context as an obligation to notice and take enforcement action on violations rather than ignoring them. This understanding is reinforced by the criminal sanctions made available against any public official who violated these responsibilities,31 and the later unsuccessful challenge in Whitsett to the Public Wage Rate Act of 1931, which included similar requirements and corresponding sanctions for officials who willfully violated or "omit[ted] to comply with the requirements of the act."32
A 1949 amendment changed the name of DIR's enforcement arm to the "Division of Labor Law Enforcement."33 Further amendments in 1976 changed the enforcing agency's name again to the Division of Labor Standards Enforcement (DLSE) (as it currently is known) and gave contractors an affirmative duty to file required records34 within ten days of a complaint of underpayment.35
In 1978, § 1776 was substantially rewritten to more closely resemble the current statute, with the elements split out into several subdivisions.36 Included in this version were redaction requirements for publicly-disclosed copies of certified payrolls and penalties for noncompliance with a records request.37 Under a measure enacted in 1983, members of the public requesting copies of certified payroll records were required to reimburse the cost of providing those records.38
Section 1776 was not amended by the 1989 Floyd legislation (discussed below), which formally recognized awarding body labor compliance programs and made other changes to the prevailing wage statutes.39 However, the new labor compliance program statute, Cal. Lab. Code § 1771.5, codified specific certified payroll record monitoring requirements for these programs, including an affirmative duty for contractors and subcontractors to regularly "furnish" the records (§ 1771.5(b)(3)), the awarding body's duty in turn to "review, and, if appropriate, audit" those records (§ 1771.5(b)(4)), and the awarding body's corresponding duty to "withhold contract payments when payroll records are delinquent or inadequate" (§ 1771.5(b)(5)).40 Section 1776 has been amended eleven more times in the past two decades, albeit without significantly changing the obligations of contractors or awarding bodies.41
Origins of Labor Compliance Program Legislation
While California's prevailing wage laws explicitly and consistently directed awarding bodies to undertake affirmative efforts to monitor and enforce compliance, most awarding bodies let these responsibilities devolve to the DLSE through its independent authority to investigate complaints and enforce violations. Though the court in Whitsett had long since rejected the claim that duties imposed on awarding bodies were unconstitutionally vague, some felt that the statutes failed to provide sufficient guidance on the specific measures an awarding body needed to undertake to effectively monitor and enforce compliance. Another reason for the absence of local enforcement measures, as recognized by the court in Lusardi, was that "both the awarding body and the contractor may have strong financial incentives not to comply with the prevailing wage law."42
In 1983, the Assembly Committee on Labor and Employment, under the direction of its chair Richard Floyd, conducted a series of hearings on the underground economy in relation to the construction industry and public works. Those hearings produced evidence of widely divergent understandings of the role of awarding bodies in prevailing wage enforcement; these ranged from sophisticated programs maintained by Caltrans and the City of Los Angeles to the complete non-involvement of other entities, such as the City of Fresno, which regarded enforcement as the exclusive responsibility of the state.43 Following these hearings, Assemblyman Floyd introduced legislation to require all awarding bodies to implement labor compliance programs with specified responsibilities. However, that legislation was vetoed, and successor proposals replaced the mandate to adopt labor compliance programs with economic incentives to do so voluntarily through higher exemptions from prevailing wage requirements and the right to retain statutory penalties collected from violators. This approach was embodied in the provisions of AB 114,44 which was signed into law in 1989.
AB 114 added a new Labor Code § 1771.5, which raised the prevailing wage thresholds for awarding bodies that elected to "initiate and enforce a labor compliance program . . . for every public works project" under the awarding body's authority,45 and in subsection (b) set forth the following non-exclusive list of required duties for such a program:
The same legislation amended Cal. Lab. Code § 1773.5 to specify that the Director of Industrial Relations' authority to adopt rules and regulations pertaining to prevailing wage enforcement included regulations specifying "the responsibilities and duties of awarding bodies[.]"46 Thereafter, the Director promulgated Subchapter 4 of Chapter 8, Division 1, Title 8 of the California Code of Regulations, setting forth specific requirements for the approval and operation of an awarding body's labor compliance program. The essential elements of labor compliance programs, as set forth in Cal. Lab. Code § 1771.5(b) and the Department's regulations, have remained largely unchanged since their adoption in 1989. However, due to persistent confusion over the responsibilities of awarding bodies after subsequent legislation began to mandate the use of labor compliance programs in specified circumstances, the Director of Industrial Relations conducted rulemakings in 2003-4 and 2007-8 to make the requirements more explicit.
Expansion of Coverage and Changes to Enforcement and Appeals
Following the election of Gray Davis in 1998, the State Building Trades sponsored a number of legislative measures to both expand the scope of "public works" projects requiring the payment of prevailing wages and to increase enforcement. The traditional method for identifying and enforcing violations (absent a proactive labor compliance program) was through the filing of a complaint with DLSE. DLSE would investigate and, upon determining that a violation had occurred, would order the awarding body to withhold contract payments due to the general contractor in an amount sufficient to cover the unpaid wages and penalties. To appeal this action, the contractor or its assignee (who might be the subcontractor found to have committed the violation) could sue the awarding body to recover the withheld payments. In other cases, DLSE might sue the contractor or its surety to recover back wages and penalties, if it was no longer able to recover those sums from the awarding body.
A subcontractor's due process challenge to this enforcement scheme in Lujan v. G & G Fire Sprinklers, Inc.47 led to legislation that substantially revamped the system for issuing and appealing wage and penalty assessments based on prevailing wage violations. Labor Code §§ 1741-43 were added and § 1771.6 was amended48 to enable DLSE to issue a civil wage and penalty assessment (under § 1741), or an awarding body to issue a Notice of Withholding of Contract Payments (under § 1771.6), which an affected contractor or subcontractor could appeal administratively to the Director of Industrial Relations pursuant to Cal. Lab. Code § 1742.49 A final order, including an assessment or Notice of Withholding that is not appealed within sixty days, can be filed as a judgment in the superior court. A new § 1742.1 further provided for liquidated damages to be awarded in an amount equal to the back wages that are due and remained unpaid more than sixty days after service of the assessment or Notice of Withholding, unless the contractor or subcontractor showed good cause for waiving those damages.50
Mandates to Initiate and Enforce Labor Compliance Programs
In the decade following the adoption of Cal. Lab. Code § 1771.5, fewer than a dozen awarding bodies implemented and enforced labor compliance programs that were approved and operated in accordance with § 1771.5 and the Director's regulations. A few others, including the City and County of San Francisco and City of San Jose, operated their own labor compliance programs but did so to enforce local or federal requirements. They did not seek DIR approval nor integrate their work with the state's enforcement mechanisms.
In 1994, the Legislature adopted special legislation for the Mountain House Community Services District, which included a requirement that the County of San Joaquin "maintain a labor compliance program pursuant to Section 1771.5 of the Labor Code for all work within the Mountain House Community Services District."51 Beginning in 2000, the Legislature authorized various types of awarding bodies to use alternative "design-build" procurement for public works construction, subject to several conditions, including a requirement to establish and enforce a labor compliance program, unless there was a project labor agreement covering the entire project.52
The adoption of Cal. Lab. Code §§ 1771.7 and 1771.853 generated a dramatic increase in the number of labor compliance programs. Those statutes required awarding bodies "to initiate and enforce, or contract with a third party to initiate and enforce, a labor compliance program, as described in subdivision (b) of Labor Code section 1771.5" for any project funded in whole or in part by the state school construction and water project bonds that were approved by the electorate in 2002 and 2004. The passage of the 2002 School Bond Act, in particular, produced a flood of applications seeking approval of labor compliance programs by the Director of Industrial Relations before § 1771.7's requirements became effective on April 1, 2003. The agency attempted to expedite processing of these applications so that bond-funded school construction would not be delayed. However, with very limited time and staff to devote to the task, the agency made only the most moderate inquiry and evaluation of each application, essentially ensuring that required program elements were present, program personnel had some background related to labor compliance enforcement, and no obvious red flags in the sponsoring entity's own history existed. Sample manuals outlining program responsibilities and procedures were posted on DIR's web site, which applicants often adopted without modification. Within a matter of months, the number of approved programs grew from about ten to over four hundred.54
The plethora of new programs charged with monitoring and enforcing labor compliance on bond-funded school construction projects did not deliver the improved enforcement climate that proponents sought. As the Legislature considered whether to expand labor compliance program requirements to a series of bonds passed in 2006, the Legislative Analyst's Office compared expenditures on the labor compliance programs § 1771.7 mandated with the reported back wages and penalties those programs recovered. It concluded that the labor compliance program had proven to be both inefficient and ineffective.55 Citing this report, Governor Schwarzenegger referred to labor compliance programs as a "failed enforcement scheme" in his veto message for SB 18 (2007), which would have extended Cal. Lab. Code § 1771.7's requirements to projects funded by the 2006 School Construction Bond known as Proposition 1D. In that veto and his veto of a similar measure in 2008,56 Governor Schwarzenegger directed his administration to work with stakeholders to reform and improve enforcement. The effort led to the adoption of Cal. Stats. 2009-2010 2d Ex. Sess., ch. 7 [SBX2-9], a measure requiring fee-supported labor compliance monitoring and enforcement by DIR on any project funded by any state-issued public works bond other than Proposition 84, and under any design-build or other public works statute that mandated use of a labor compliance program.57
Monitoring and Enforcement by the Department of Industrial Relations
The Director of Industrial Relations adopted regulations implementing SBX2-9's requirements, including through the establishment of a new Compliance Monitoring Unit (CMU) within DLSE, and those regulations became effective on August 1, 2010. However, due to questions the Attorney General's bond counsel raised over the legality of paying for labor compliance with bond funds, the Director issued emergency regulations to suspend implementation of SBX2-9 and enable the Attorney General to issue unqualified opinions for pending bond sales. The emergency regulations remained in effect and the program was suspended through 2011, while the legal questions were addressed and corrective legislation enacted.
Parts of this article were initially drafted for incorporation into a "White Paper on Prevailing Wage Compliance as an Integral Construction Cost of Public Works Projects," to address questions raised by bond counsel regarding the historical role of labor compliance monitoring and enforcement in public works construction. Based on the White Paper, the Attorney General's bond counsel concluded that labor compliance enforcement was an inherent cost of public works construction that could be supported through bond proceeds.58 New legislation was introduced to clarify and revise the legal requirements of SBX2-9.59 Conforming changes were made to the implementing regulations, and the CMU finally became operational on January 1, 2012.
The statutes SBX2-9 and AB 436 adopted or amended,60 sometimes referred to collectively as the "CMU statutes," were projected to cover up to forty percent of public works projects in the state. The statutes offered two alternatives to monitoring and enforcement by DIR: (1) continued use of a previously-approved labor compliance program, provided the awarding body did not contract with a third party to operate the program; or (2) having a collective bargaining agreement that covered all contractors on the project (also known as a project labor agreement), which included a mechanism for resolving wage disputes.61
As anticipated, the role of labor compliance programs diminished. The Director of Industrial Relations stopped approving private third party labor compliance programs, instead grandfathering approval over to the awarding bodies that had contracted for their services.62 In 2012, the Director stopped approving any new labor compliance programs other than those required for projects funded by Proposition 84. At the same time, the Director approved only seventeen awarding bodies to continue using existing labor compliance programs in lieu of the CMU, while denying approval to over seventy others, usually because they remained dependent on contract operators.
The CMU encountered its own difficulties, portending further changes in California's system for monitoring and enforcing prevailing wage requirements. The language AB 436 added to the CMU statutes to ensure no possible misuse of bond funds also had the effect of severely limiting the funds available to start up and operate the CMU, while increasing the resources devoted to administrative costs rather than compliance monitoring and enforcement. Almost inevitably, this led to a continued search for a better way to enforce prevailing wage requirements. The Governor's budget for fiscal year 2014-15 now proposes to jettison the current system in which awarding bodies must pay for compliance monitoring on state bond-funded or other designated projects. It seeks to replace it with a public works contractor registration system, in which all public works projects are subject to active monitoring by DLSE and contractor registration fees are used to fund all administration and enforcement of prevailing wage requirements by DIR.63
* The original version of this article was prepared in conjunction with the development of the "White Paper on Prevailing Wage Compliance as an Integral Construction Cost of Public Works Projects" that was compiled by Labor Workforce and Development Agency General Counsel Mark Woo-Sam and submitted by former DIR Director John Duncan to the Attorney General on December 10, 2010. The section of this document titled "Origins of Labor Compliance Program Legislation" is based largely on Woo-Sam's work, and another section in the original treatise (but omitted here) on Federal Prevailing Wage Enforcement reflected additional research and analysis by the late DIR Senior Staff Counsel Michelle Yu. Back
4. Adkins, 261 U.S. at 547. See also Atkin v. State of Kansas, 191 U.S. 207 (1903) (upholding a Kansas law fixing the hours of work and wages on public works as constitutional notwithstanding a claim that it infringed on contractual freedom). Subsequent constitutional challenges, some successful and others not, focused on the indefiniteness of terms such as "prevailing rate" or "locality," especially in the context of criminal sanctions, or on rate-setting methodologies (see Connally v. Gen. Constr. Co., 269 U.S. 385 (1926)), but none successfully challenged the general authority of the federal government or a state to regulate public works employment. For a more extensive discussion of the authorities and rationale for upholding the constitutionality of California's prevailing wage laws, see O.G. Sansone v. Department of Transp., 55 Cal. App. 3d 434 (1976). Back
5. 1868 Cal. Stats. at 63, § 2. Section 1 of this statute stated, "Eight hours labor shall be deemed and held to be a legal day's work in all cases within the State, unless otherwise expressly stipulated between the parties concerned." This formal statutory recognition of the eight-hour day modified one of the state's earliest laws, which had declared ten hours to be a legal day's labor. 1853 Cal. Stats. ch. 199. Back
6. In 1902, this constitutional provision was expanded to read as follows:
12. Id., § 2. This original penalty amount of $10 per worker per day is notable in retrospect in that it was five times the required minimum daily wage, was not subject to discretionary reduction, and when adjusted for inflation would amount to a penalty of over $275 per worker per day in 2014. The current maximum penalty specified in Cal. Lab. Code § 1775 is $200 per worker per day, having recently been raised from a former maximum of $50 per worker per day that applied from 1990 through 2011. Back
18. 1929 Cal. Stats. ch. 793 stated as follows:
29. 1869-70 Cal. Stats. ch. 519, § 1 and 1897 Cal. Stats. ch. 88. The Director of Industrial Relations has determined prevailing rates on an hourly basis since the responsibility to ascertain and determine rates was shifted from awarding bodies to the Director through the 1976 amendments to Cal. Lab. Code §§ 1770 and 1773. 1976 Cal. Stats. ch. 281, §§ 2, 3. However, the concept of hourly rates did not appear in the rate-setting statutes prior to the amendment of Cal. Lab. Code § 1773.1 and adoption of Cal. Lab. Code §1773.9 by 1999 Cal. Stats. ch. 30, §§ 1, 2. Back
32. Metro. Water Dist. v. Whitsett, 215 Cal. 400, 408 (1932). The original version of Cal. Lab. Code § 1726 adopted in 1937 stated: "The body awarding the contract for public work shall take cognizance of violations of the provisions of the chapter, committed in the course of the execution of the contract." Contract withholding responsibilities and criminal sanctions for non-performance were split out into other sections of the Code, and this separation along with DIR's increased role in administering and enforcing prevailing wage laws may account for later confusion over what it means for an awarding body to "take cognizance" of violations. Nevertheless, the language of § 1726 remained intact until 2000, when AB 1656 added a requirement to report violations promptly to the Labor Commissioner and to follow the procedures in Cal. Lab. Code § 1771.6 if the awarding body finds a violation and withholds contract payments as a result of its own investigation. (2000 Cal. Stats. ch. 954, § 3.) AB 1656 completely revamped the procedures for appealing or enforcing a determination of liability for unpaid wages and penalties due to violating prevailing wage requirements. Under prior law, either the general contractor had to bring a superior court action to recover contract payments withheld by the awarding body, or the enforcing agency (the Labor Commissioner or the awarding body) had to sue if the contractor had already been fully paid or the liability exceeded the amount withheld. This system was replaced with an administrative appeals process conducted by hearing officers appointed by the Director of Industrial Relations and subject to administrative mandamus review in superior court. The new law also, for the first time, gave subcontractors their own right to appeal determinations in which they were found to have violated prevailing wage requirements. See Cal. Lab. Code §§ 1741-43. A 2003 amendment added the right of contractors to sue awarding bodies if affirmatively misled about prevailing wage requirements. (2003 Cal. Stats. ch. 804, § 1.) Back
34. The recordkeeping requirement that was first adopted in 1929 was rewritten and expanded in the 1931 Act to include the recording of occupations and wages paid in addition to the names of workers employed. The original version of Cal. Lab. Code § 1776 adopted in 1937 read as follows:
35. 1976 Cal. Stats. ch. 599, § 1. This legislation also added DIR's Division of Apprenticeship Standards (DAS) as an additional entity that could inspect the records. DAS was later removed by 2012 legislation that transferred the responsibility for enforcing public works apprenticeship requirements to the Division of Labor Standards Enforcement. (2012 Cal. Stats. ch. 46, § 96.) Back
37. Through the review of redacted certified payroll records, a member of the public or outside monitoring group can determine what work classifications, hours of work, and pay rates are being reported by a subcontractor. Sometimes violations will be apparent on the face of a certified payroll record, such as if the reported rate of pay is less than the prevailing rate for the reported work classification, or if the subcontractor did not pay overtime rates for reported overtime hours of work. Other actual or potential violations can be detected by comparing the payroll records to other available information; for example, the subcontractor might be known to have spent more hours on the job or to have used more workers than reported on the certified payroll records for the day or week in question, or the subcontractor may report paying unskilled laborer rates for work that should have been compensated at the prevailing rates for more highly-skilled crafts. This sort of outside review can result in a complaint of a suspected violation made either to the state Labor Commissioner or to the awarding body's labor compliance program. Back
40. This latter obligation, which was further defined by regulation at Cal. Code Regs. tit. 8, § 16435, differed from the statutory obligation to withhold contract payments based on prevailing wage violations in that it essentially made the timely submission of adequate records a prerequisite for getting contract payments, without regard to whether there were actual violations of prevailing wage standards. Back
41. 1992 Cal. Stats. ch. 1342, § 10 added a subsection requiring payroll records to either be on forms provided by DLSE or containing the same information. 1997 Cal. Stats. ch. 757, § 4 provided that a contractor would not be liable for penalties assessed against a subcontractor for certified payroll record violations. 2001 Cal. Stats. ch. 804, § 2 gave joint labor-management committees the right to obtain copies of certified payroll records showing the addresses, but not the names or social security numbers of workers. 2011 Cal. Stats. ch. 677, § 2.5 gave the state's Joint Enforcement Strike Force on the Underground Economy the right to obtain unredacted copies of certified payroll records and raised the penalties assessed for non-compliance from $25 to $100 per violation. 2013 Cal. Stats. ch. 792, § 3 changed the redaction requirements to allow joint labor-management committees to also see the names of workers and to enable multiemployer Taft-Hartley trust funds to see all but only the first five digits of individual social security numbers when requesting the records for the purpose of allocating contributions to participants. None of the other amendments to Cal. Lab. Code § 1776 changed the substance of the statute. Back
42. Lusardi Constr. Co. v. Aubry, 1 Cal. 4th 976, 987 (1992) (emphasis added). An exception to the norm of non-involvement by awarding bodies in prevailing wage enforcement was the California Department of Transportation, which by 1973 had a labor compliance program with the same range of monitoring and enforcement responsibilities that are now required for all approved programs under Cal. Lab. Code § 1771.5 and DIR regulations at Cal. Code Regs. tit. 8, §§ 16421-39. Back
43. Fresno made this contention in litigation brought by the Operating Engineers Local Union No. 3, seeking an order to compel the city to enforce prevailing wage laws. The court sided with the union, finding that Cal. Lab. Code § 1726 in particular required awarding bodies to "take cognizance" of violations rather than ignore them. (Operating Eng'rs Local Union No. 3 v. City of Fresno, Fresno Super. Ct. No. 283053-7 [Memo. of Decision re Demurrer, Oct. 27, 1983].) Back
45. Specifically, Cal. Lab. Code § 1771.5(a) raised the $1,000 contract threshold that triggered the obligation to pay prevailing wages (under Cal. Lab. Code § 1771) to $25,000 for construction work and $15,000 for alteration, demolition, repair, or maintenance work. Back
46. AB 114 also amended Cal. Lab. Code § 1775 by raising the penalty for wage underpayments to up to $50 per violation, and authorizing the Labor Commissioner to determine the precise amount in light of a contractor's history and other culpability factors. Previously, § 1775 and its predecessor statute had provided for a fixed penalty amount (originally $10 per violation in the 1931 Act and $25 per violation prior to the 1989 amendment) that could be assessed by either the Labor Commissioner or the awarding body. Back
49. Ironically, prior to the new legislation becoming effective on July 1, 2001, the Supreme Court issued its unanimous decision in Lujan v. G & G Fire Sprinklers, 532 U.S. 189 (2001), which rejected the subcontractor's due process challenge that previously had been upheld by a divided panel of the Ninth Circuit. The Court concluded that there was no deprivation of constitutional rights in light of the ordinary contract remedies that likely were available to the aggrieved subcontractor. Back
50. This liquidated damages provision is similar to ones that apply to ordinary claims for minimum wages or overtime under state and federal law (Cal. Lab. Code § 1194.2 and 29 U.S.C. §§ 216(b) and 260), except that Cal. Lab. Code § 1742.1(a) provides a sixty-day grace period within which liability for liquidated damages can be avoided by paying the wages that are due. A 2008 amendment to Cal. Lab. Code § 1742.1(a) (2008 Cal. Stats. ch. 402 § 3 [SB 1352]), added a "safe harbor" provision through which a contractor can avoid the imposition of liquidated damages by depositing the assessed wages and penalties with DIR to hold in escrow during the pendency of the contractor's appeal. Back
51. 1994 Cal. Stats. ch. 1201, § 13, adding Cal. Gov't Code § 61620.1; repealed by 2005 Cal. Stats. ch. 249 (SB 135). The office of the Director of Industrial Relations, which oversees labor compliance programs, has no record of a program becoming operational under this statute. Back
52. Over the following decade, the Legislature continuously adopted new design-build legislation that expanded coverage to additional projects and awarding bodies and extended sunset dates for existing authorizations. By 2012, eleven statutes in the Education, Health and Safety, Public Contract, and Streets and Highways Codes authorized design-build construction subject to the requirement to use a labor compliance program, a project labor agreement, or DIR's new monitoring program. A complete list of state statutes that currently have some form of labor compliance program requirement can be found on DIR's website at http://www.dir.ca.gov/lcp/StatutesRequiringLCPs.pdf (accessed Mar. 22, 2014). Back
54. Among the newly approved programs were private entities that contracted with awarding bodies to serve as the required labor compliance program for individual projects in the same manner that the services of an architect or construction manager might be procured for the project. This obviated the need for some awarding bodies to establish or maintain a labor compliance program of their own, but it created its own set of issues related to private entities doing statutory enforcement work on a for-profit basis and potential conflicts of interest with the general contractors, construction management firms, or unions that tended to sponsor these entities. Back
58. This conclusion was supported by the two legal authorities that squarely addressed the question of whether Cal. Gov't Code § 16727 permitted or prohibited using bond proceeds to fund oversight costs associated with a funded public works project. See San Lorenzo Cmty. Advocates for Responsible Educ. v. San Lorenzo Unified Sch. Dist., 139 Cal. App. 4th 1356, 1401-2 (2006), and 87 Op. Cal. Att'y Gen. 157, 162-3 (2004). This conclusion was also expressed affirmatively in AB 436, § 1(f). Back
61. Project labor agreements are not vehicles for enforcing statutory prevailing wage requirements per se, but are regarded as assuring greater attention to and compliance with labor standards overall. The project labor agreement exception originally appeared only in design-build and other miscellaneous statutes, but was added to the bond statute by AB 436. Back
62. This step was taken in light of the fact that statutory labor compliance program requirements applied only to awarding bodies and the Director had never been charged with regulating a private labor compliance program marketplace. Back