Bill targets underground economy

JUNE 10, 2010

By KATY GRIMES

A bi-partisan bill is moving through the Legislature that proposes to punish an employer with a stiff penalty if it does not pay minimum wage. The proposed penalty increases the current damages to two times the wages unlawfully unpaid, plus interest. AB1881, authored by Assemblyman Bill Monning, D-Carmel, is sponsored by the California Rural Legal Assistance Foundation (CRLAF).

Employees can currently sue an employer when the employer pays less than minimum wage, but the damages are limited only to the wages unlawfully paid plus 10-percent interest.

According to Monning, California has an “underground economy” that generates between $60 billion and $140 billion a year, representing a tax loss of anywhere between $3 billion and $6 billion. A UCLA study found that Los Angeles County loses $26 million every week to the underground economy.

CRLAF representative Mark Schacht explained that the underground economy is made up of 18 million employees and includes employers who pay cash under the table, pay no employment taxes and rarely carry workers’ compensation insurance. The underground economy is found in agriculture, construction, the garment industry and car wash businesses according to Schacht. “This bill is a modest step,” said Schacht.

Stanford Law Professor Juliet Brodie explained to the committee that usual discussions surround striking a balance between the interests of the worker and business. She said that this bill is different because it intersects workers with employers who follow the rules. Competing businesses that fail to follow the wage rules are the only ones penalized under AB1881, according to Brodie.

Brodie’s testimony included some history as she explained that while California will be only the tenth state to adopt the increased employer damages for failing to pay minimum wage, the bill is not as restrictive as some states that include payment of overtime, tips and lost benefits.

Committee Chairman Mark DeSaulnier, D-Concord, asked Brodie if the penalties work as deterrents in other states. But Brodie said that was not her area of expertise and was not comfortable offering an opinion.

DeSaulnier said that the purpose of the bill was not just deterrence but getting the wages paid to the workers. “If we focus on the bad behavior of the employer, it raises the level of responsibility instead of punishing all employers,” said DeSaulnier.

Monning said the bill only goes after the unpaid wages, and not accounting errors in employee pay. “It will help the law-abiding employer who is underbid by cheating employers,” added Monning.

The resulting benefit to the state is the payroll taxes that will be realized when all employers pay employees properly and legally, according to Monning.

Also in support of the bill were the California Labor Federation, the Teamsters and the United Food and Commercial Workers.

In opposition: the California Chamber of Commerce, whose representative stated that the bill would hurt lawful employers, by creating more frivolous lawsuits. However, the Chamber agreed that the underground economy is hurting its members as well.

Monning reiterated that the intent of the bill is to level the playing field for law-abiding employers and employees.

At press time, the committee had not established a quorum and had not voted on the bill.

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  1. John Seiler
    John Seiler 11 June, 2010, 19:03

    Another reason for businesses to leave Taxifornia. Or go underground.

    Already, the only folks who can afford to live here are: high-tech millionaires, movie stars, government workers, government retirees, and drug dealers.

    Reply this comment
  2. EastBayLarry
    EastBayLarry 14 June, 2010, 04:37

    “Committee Chairman Mark DeSaulnier, D-Concord, asked Brodie if the penalties work as deterrents in other states. But Brodie said that was not her area of expertise and was not comfortable offering an opinion.”

    But that IS the point isn’t it? Will this help or hurt, or is it irrelevant?

    Reply this comment
  3. Bubba English
    Bubba English 9 October, 2010, 16:37

    A new bill that targets the underground economy employer,that proposes to punish an employer with a stiff penalty if he does not pay minimum wage. The proposed penalty increases the current damages to two times the wages unlawfully unpaid, plus interest.In my experiences with the State Labor Board for the last four years adding a new law will just make it harder on the person filing the claim.I filed a claim with the Labor Boards BOFE UNIT expecting an investigation that didn’t happen.My claim was given to the DLSE for a one person claim instead of a group claim,no investigation needed.I gave them official documents that proved all my allegations were true.And I’m now being run around in circles. My former employer is still breaking the law and I’m fighting to get unemployment, because I lost my job after reporting my former under ground employer. That’s what I got for obeying the law. The person that replaced me is being paid cash, no taxes, no overtime being paid. If the authorities won’t enforce the laws we have ,their not going to enforce any new laws.We need to demand that the companies operating from the underground be punished not protected.

    Reply this comment
  4. Bubba English
    Bubba English 27 October, 2010, 04:48

    Bubba English says: My former employers pay cash under the table, pay no over time, employment taxes very rarely.CRLAF representative Mark Schacht explained the underground economy is found in agriculture, construction, the garment industry and car wash businesses.There is one industry that is grossly being left out and that is the FURNITURE MOVING INDUSTRY. I have worked 30 years in that industry and I have watched so many companies go into the under ground economy.There is an article in WatchDog October 1,2010 by: Tylerle13 comment #1 12:10 PM.Story Of A Business Closure.This comment that was made;(Every time we tell them that people are going out of business,companies are rushing to the border to leave the state, they say it doesn’t matter because they will be replaced by all of the new Green companies that will come to the state.)Hopefully they will wake up before the state ends up in bankruptcy
    ,and realize that these so called GREEN COMPANIES are the companies that are working in the under ground economy and yes they are raking in the green it’s called money.My former employers aren’t paying overtime,taxes sometimes.Their workers have no benefits and most of the time shorted hours.And what does our over paid politicians in Sacramento say:

    IT DOESN’T MATTER

    Unfortunately for the people who are suffering the consequences,it does matter. But on the other hand if I had millions of dollars to spend on a campaign, and $100,000 dollar job and retire with that kind of money coming in every month plus medical for the rest of my life ,it wouldn’t matter to me neither. We need to change the laws, not add new ones. They keep talking about an open government,if that’s the case the public should have some say over the out come of new laws, and changing the ones that we have now.

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