Employers urged make updates for compliance

The California Legislature introduced a number of bills in the second half of the 2017-2018 that address employment issues facing employers in the construction industry. These bills became law effective January 1, and in Q2 of 2019, the employers who have not yet made these important changes are urged to update contracts, policies, and/or practices to be in compliance and protect their companies.

AB 1565

This law amends Subdivision H, contained in Section 218.7 of the Labor Code and repeals the provision that relieved direct contractors for liability for anything other than unpaid wages and fringe or other benefit payments or contributions, including interest owed.

Previously, with contracts entered into before January 1, 2019, a direct contractor could withhold “disputed” sums owed to a subcontractor if the subcontractor failed to provide “information” about their and lower-tier subcontractors’ payroll records.

Today, the direct contractor must now specify in the subcontract what documents and information the subcontractor must provide. If the subcontractor fails to provide the information or the documents show noncompliance, only then is the direct contractor authorized to withhold a disputed payment.

Direct contractors should revise contract language to resolve confusion and to substantiate payroll, consider requiring submission of payroll records/statements, fringe benefit and subsistence statements, and employee time cards, among other types of records.

AB 3018

This amends Sections 2601 and 2602 of, and to add Section 2603 to, the Public Contract Code, relating to public contracts. AB 3018 imposes penalties on contractors and subcontractors who fail to comply with “skilled and trained workforce” requirements. The percentage required in 2019 will be 50 percent and will rise to 60 percent in 2020.

Additionally, it requires the awarding body to forward a monthly report to the California Labor Commissioner for issuance of a civil wage and penalty assessment, if a contractor or subcontractor has failed to comply with skilled and trained workforce requirements.

The law imposes new penalties on contractors, subcontractors, and design professionals who fail to meet the skilled and trained workforce requirements.Penalties imposed by the Labor Commissioner are up to $5,000 per month for the first violation and up to $10,000 per month for a second or subsequent violation within a three-year period.
In an effort to protect themselves, contractors should:

  • recite the skilled and trained workforce requirements within the body of subcontracts
  • attach full copies of Labor Code sections 2601-2603 to subcontract agreements
  • monitor each subcontractor’s use of a skilled and trained workforce
  • take corrective action once aware of a subcontractor’s failure to use a skilled and trained workforce
  • require each subcontractor to provide with each payment application a declaration from the subcontractor, signed under penalty of perjury, that the subcontractor has met the skilled and trained workforce requirements

AB 1654

This bill was sponsored by the California Conference of Carpenters, who argued that it was needed “to protect construction industry employers from frivolous lawsuits brought under PAGA.”Approved by Governor Jerry Brown back in September 2018, AB 1654 provides Labor Code Private Attorneys General Act (PAGA)relief to unionized construction contractors.

It provides that PAGA does not apply to an employee in the construction industry with respect to work performed under a valid collective bargaining agreement (that meets certain conditions) where the agreement:

  • is entered into before January 1, 2025
  • provides for the wages, hours of work, and working conditions of employees, premium wage rates for all overtime hours worked, and for the employee to receive a regular hourly pay rate of not less than 30 percent more than the state minimum wage rate
  • prohibits all of the violations of the Labor Code that could be addressed under PAGA
  • provides a grievance and binding arbitration procedure for alleged violations and authorizes the arbitrator to award all remedies potentially available under the Labor Code (except PAGA remedies)
  • and waives PAGA rights

This carve-out expires on the date the collective bargaining agreement expires, or on January 1, 2028, whichever is earlier.

Further information

To learn more about these and other new laws that went into effect as of January 1, 2019, visit the California Legislative Information website. Employers that have not yet made adjustments to contracts, policies, and/or practices, should be sure to reach out to counsel and get additional legal insight on these new laws and steps needed to be in compliance.

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