Tag Archive for Assembly Bill 987 (2012)

Contractor Has to Shell Out $8 Million After Unions Win Argument That Hilton San Diego Bayfront Hotel Was a “Public Works” Project

Are you one of the 2000+ construction trade workers who built the Hilton San Diego Bayfront Hotel? The California Division of Labor Standards Enforcement (Labor Commissioner’s office) gave me the following information about what to do:

Send your contact information to this California Division of Labor Standards Enforcement district office address (presumably via a letter or postcard) explaining that you were a trades worker on the Hilton San Diego Bayfront Hotel:

California Division of Labor Standards Enforcement
7575 Metropolitan Drive, Room 210
San Diego, CA 92108

According to a representative in the DIR Legal Division, payments to former workers (in the form of checks) are supposed to be available 60-90 days after the June 17, 2013 official announcement. A third-party administrator is handling the processing of the payments.

The phone number for this San Diego district office is (619) 220-5451.


This morning (June 17, 2013) the California Department of Industrial Relations (DIR) issued a press release declaring that the Labor Commissioner Collects Over $8 Million in Wages for Public Works Job at Hilton Hotel in San Diego. Surely unions will portray this settlement as a victory for exploited workers against greedy capitalists. Actually, it is a symptom of absurd, ambiguous, union-backed definitions of public works in state law.

Right off the bat, you notice something odd: the headline of the press release includes the clarification that the hotel was a “public works job.” How did a Hilton hotel become a public works job? You thought “public works jobs” were government projects such as schools, courthouses, libraries, and post offices.

You thought wrong. In 2001, Governor Gray Davis signed the union-backed Senate Bill 975 into law. It expanded the definition of a “public works” project to include just about any assistance of any financial value from a government:

For purposes of this section, “paid for in whole or in part out of public funds” means the payment of money or the equivalent of money by a state or political subdivision directly to or on behalf of the public works contractor, subcontractor, or developer, performance of construction work by the state or political subdivision in execution of the project, transfer of an asset of value for less than fair market price; fees, costs, rents, insurance or bond premiums, loans, interest rates, or other obligations that would normally be required in the execution of the contract, which are paid, reduced, charged at less than fair market value, waived or forgiven; money to be repaid on a contingent basis; or credits applied against repayment obligations.

In 2012, the Assembly Labor and Employment Committee rejected (on a party-line vote – Democrats opposed and Republicans in support) Assembly Bill 987, sponsored by Associated Builders and Contractors of California and introduced by Assemblywoman Shannon Grove (R-Bakersfield). This bill would have simplified a section of California Labor Code 1720 defining “public works” that two court decisions have described as “As statutes go, Section 1720 is hardly a triumph of the drafter’s art.” Unions like the law as written, and their triumph described below shows why they oppose any reasonable amendments to the law.

The United Port of San Diego owns property on the San Diego waterfront next to the San Diego Convention Center. In 2002, the Port issued a Request for Proposals for an entity to lease the land and build a hotel on the site. After choosing Hilton San Diego Convention Center, LLC to lease the land and build the hotel, the Port negotiated a lease that included a rent credit equal to 60 percent of the rent due each month for 11 years, not to exceed a total of $46.5 million. Subsequently the Port provided a “rent credit acceleration” for the hotel developer.

Hilton San Diego Convention Center, LLC chose Hensel Phelps, an investor in the project, as the general contractor. In April 2004, Hensel Phelps asked the Port if the hotel project was a public works job subject to the payment of state-mandated construction wage rates (so-called “prevailing wages”) to trade workers. In a memorandum dated May 12, 2004, the Port considered the available information and concluded that “the Hilton Hotel development is not considered a public works project subject to the payment of prevailing wages.” See that memo here: May 12, 2004 – Port Says Hilton San Diego Not Public Works.

After construction began in 2006, the Carpenters Contractors Cooperation Committee (CCCC) and Southern California Labor/Management Operating Engineers Contract Compliance Committee, two union-affiliated labor-management cooperation committees, referenced the rent credit and asked the California Department of Industrial Relations (DIR) to determine whether or not the Hilton Hotel was a public works project subject to state-mandated prevailing wage laws. The DIR began its own analysis of the project. See September 14, 2006 DIR Request to Port of San Diego for Hilton San Diego Documents.

In a response to the DIR dated October 2, 2007, Port of San Diego staff stated that it “believes that given the specific conditions of the RFP; challenges caused by extensive site remediation; the extent of public improvements; location; and size of the site, the transaction that was negotiated with Hilton represents the market for this particular site,” thus denying that the rent credit exceeded fair market value. The Port also warned that if the state decided to declare the hotel a public works project, it would discourage additional development of the area:

Port staff has received inquiries from other tenants, who are in the process of developing leaseholds, regarding this matter. We are concerned that attempts to treat private leaseholds as public projects will set off a chain reaction and have a chilling effect on redevelopment and reduce rental revenue to the Port, which will in turn negatively impact the Port’s ability to further its own capital projects.

Associated Builders and Contractors (ABC) of California (my former employer) and Associated General Contractors (AGC) of California submitted letters to the DIR arguing that the Hilton hotel was not a public works project. The Southern California Labor/Management Operating Engineers Contract Compliance Committee submitted a rebuttal to the ABC and AGC arguments.

November 30, 2007 San Diego Hilton Not a Public Works – ABC of CA Comment

December 7, 2007 San Diego Hilton Not a Public Works – AGC of CA Comment

December 19, 2007 San Diego Hilton is a Public Works – Operating Engineers Union Response

On April 1, 2008, the Director of the California Department of Industrial Relations determined that “the construction of the Hilton San Diego Convention Center Hotel and related development” is “a public work subject to prevailing wage requirements.” See April 1, 2008 DIR Director’s Decision – San Diego Hilton – Public Works.

Hensel Phelps filed an administrative appeal of the decision, and the DIR sought additional comments. See April 25, 2008 DIR Notice of Appeal – San Diego Hilton. Among the commenters were Associated Builders and Contractors of California: see May 8, 2008 San Diego Hilton Not a Public Works – Comments on Appeal – ABC of California.

On June 23, 2008, the DIR Director denied the appeal and affirmed his original decision that the Hilton San Diego Convention Center Hotel was a public work subject to prevailing wage requirements. Four days later, Hensel Phelps filed a lawsuit (Hensel Phelps Construction Company vs. California Department of Industrial Relations) in San Diego County Superior Court to overturn the DIR Director’s decision.

On February 25, 2010, a San Diego County Superior Court judge ruled that the Hilton San Diego Convention Center Hotel and related construction was not a “public work” subject to prevailing wage requirements. On April 23, 2010, the Director rescinded his earlier decision and ruled that the Hilton San Diego Convention was not a public works project. See April 23, 2010 DIR Rescinds Coverage Determination for San Diego Hilton.

But the Carpenters Contractors Cooperation Committee appealed the judgment to the Court of Appeal, Fourth Appellate District. On July 26, 2011, the court reversed the Superior Court decision and ruled that the rent credit was a payment of public funds, regardless of whether or not the rent reduction had a realizable monetary worth. See July 26, 2011 Hensel Phelps v San Diego Port District Appeals Court Decision – Prevailing Wage on Hilton San Diego Bayfront Hotel.

The State Building and Construction Trades Council of California had filed an amicus brief in the case. In its July 21, 2011 bulletin Court of Appeal Rules Prevailing Wage is Required on San Diego Hilton Project, it expressed outrage that “the Schwarzenegger Administration refused to file an appeal to defend the Department of Industrial Relations’ coverage decision” and that “the Port District and the Developer should be ashamed of themselves.”

The DIR press release explains what happened next:

Hensel Phelps Construction Company and the Labor Commissioner then negotiated the amount of wages due to the workers. All 2,051 workers will receive the full prevailing wages they earned on this project. They performed every aspect of construction, from foundation drilling to concrete pouring to steel erection to landscaping.

Hensel Phelps Construction Company will pay a third party administrator to process payments to the workers. The prime contractor will also pay an additional $400,000.00 to the Labor Commissioner as reimbursement for investigative costs.

Now we know that state-mandated construction wage rates cost an extra $8 million for a specific $350 million hotel project built in downtown San Diego in the mid-2000s. You can imagine the cost of prevailing wage for a project in a rural area during the recent economic downturn.

Is it surprising that the developers of the proposed Turtle Bay Sheraton Hotel in Redding suspended their plans earlier this year to build the hotel when unions managed (on their second try) to get the DIR to determine that hotel would be a “public works” project? See my February 15, 2013 post Unions Rise to Defense of “Prevailing Wage” Rates Jeopardizing Hotel Project in Redding and my January 31, 2013 post Redding Needs a Charter to End Nonsense Definition of Private Hotel as a “Public Works” Project.

California Bill Would Create a New Construction Trade Classification for Final Cleanup and Janitorial Work

UPDATE: An article posted on January 11, 2013 in www.CalWatchdog.com reveals how some company officials in the California construction industry illegally handle the $45 per hour state-mandated wage rate for construction cleanup laborers. I’m quoted in the article. See Prevailing Wage Scams Steal from Taxpayers.

My article California’s “Prevailing Wage” – Floor Vacuuming at $45.93/Hour was posted on January 8, 2012 in www.UnionWatch.org.


An article in the January 2, 2013 San Bernardino Sun (Assemblyman Curt Hagman to Introduce Bill on Prevailing Wages for Final Cleanup Workers) reports that Assemblyman Curt Hagman (R-Chino Hills) will be introducing a bill to establish a new trade classification for the purposes of setting state-mandated construction wage rates (so-called “prevailing wages”) for low-skilled cleanup work on taxpayer-funded construction in Southern California.

Here is the draft summary of the bill to establish a construction cleanup prevailing wage rate in California.

Here is the draft text of the bill to establish a construction cleanup prevailing wage rate in California.

The article reports that the state requires contractors working on public works projects in Northern California to pay at least $12 per hour to laborers engaged in janitorial or final clean-up work for construction. Meanwhile, the state requires contractors working on public works projects in Southern California to pay at least $45 per hour to laborers engaged in janitorial or final clean-up work for construction, because Southern California lacks a janitorial work or final cleanup trade classification.

A decision in 2009 (Harbor Construction Co., Inc.) from John Duncan, Director of the California Department of Industrial Relations (DIR) during the Schwarzenegger Administration, stated that “final cleanup” work was subject to state-mandated construction wage rates when such work was included in a contract between a construction company and a public agency. That “final cleanup” included “vacuuming, dusting, cleaning and polishing windows, walls and floors” for a project of the Antelope Valley Union High School District in Los Angeles County. Harbor Construction hired Baron Cleaning Services for a cost of $8,721.00 to perform clean-up work, and Baron Cleaning Services paid the workers for a total of 619 hours as if they were doing private janitorial work. The labor compliance program at Antelope Valley Union High School District concluded that this was construction work to be paid at the applicable state prevailing wage rate, and the DIR agreed.

So how are contractors able to pay $12 to janitors who perform final cleanup work on public works projects in Northern California?  I’m not sure.

In California, “prevailing wages” for construction trades are almost always based on the employer payments in the applicable collective bargaining agreement for a geographical region: see Section 1773 of the California Labor Code and Title 8, Subchapter 3 of the California Code of Regulations.

In Northern California, the state-mandated wage rate for Laborers Group 4 trade classification applies to “Final cleanup on building construction projects prior to occupancy only. Cleaning and washing windows (new construction only), service landscape  laborers (such as gardener, horticulture, mowing, trimming, replanting, watering during plant establishment period) on new construction.” But the straight time hourly wage for that classification is $39.02 ($20.58 basic wage + fringe benefits and “other”) in the San Francisco Bay Area and $38.02 ($19.58 + fringe benefits and “other”) in other counties of Northern California. These wages are based on the collective bargaining agreement negotiated between the Northern California District Council of Laborers and Associated General Contractors (AGC) of California.

For Southern California, the Department of Industrial Relations sets the “prevailing wage” for the Group 1 classification of “Laborer, General Cleanup” at $45.93 ($28.09 + fringe benefits and “other”) This matches the claim made in the San Bernardino Sun article. This amount is based on the collective bargaining agreement negotiated between the Southern California District Council of Laborers and three contractor associations – Associated General Contractors (AGC) of California, Building Industry Association (BIA) of Southern California, and the Southern California Construction Association:

In San Diego County, the state-mandated total straight time hourly “prevailing wage rate for a journeyman in the Group 1 classification of “Laborer, General Cleanup” for commercial building is $43.27. This amount is based on the collective bargaining agreement negotiated between the Southern California District Council of Laborers for San Diego County and Associated General Contractors – San Diego Chapter.

I can’t imagine that the Laborers Union would permit employers to pay $12 per hour when its collective bargaining agreements includes the same work at far higher wages. I wasn’t able to find an exception to this rule in the collective bargaining agreements.

California Public Utilities Code Sections 465-467 require public utilities to pay prevailing wage rates for labor of a custodial or janitorial nature, and therefore the California Department of Industrial Relations determines state-mandated wage rates for this kind of work. These wages are about $12 per hour, but this is not construction work.

Alternative Strategies for Accurate Prevailing Wages on Construction Cleanup

Assemblyman Hagman is bringing public attention to the need for reform of California’s prevailing wage laws, as Assemblywoman Shannon Grove (R-Bakersfield) did in 2012 with her bills to reform the definition of public works (Assembly Bill 987) and the method of calculating state-mandated construction wage rates (Assembly Bill 988). Based on the comments posted under the San Bernardino Sun article, some readers were disgusted about how they pay taxes so people can vacuum floors at $45 per hour (including fringe benefits and “other”).

But there’s no way lobbyists for the Laborers Union and the State Building and Construction Trades Council of California are going to let this bill pass out of committee. (They wouldn’t even pass Assemblywoman Shannon Grove’s Assembly Bill 1958, which increased the project cost threshold from $1000 to $2000 to match the federal Davis-Bacon threshold.) It will be defeated in the Assembly Labor and Employment Committee on a party-line vote: Democrats opposed, Republicans in support.

Interested parties that want to establish a reasonable wage rate for “vacuuming, dusting, cleaning and polishing windows, walls and floors” may want to use the authority of California Labor Code Section 1773.4 (see California Code of Regulations Title 8, Section 16302) and petition the Department of Industrial Relations for a prevailing wage determination on such work. The DIR could conduct a survey and/or refer to the wage rates set for janitors working for public utilities.

Another idea is for public agencies to narrowly define construction cleanup in their contracts with construction companies, so that the absurd $45 per hour straight time hourly wage applies to legitimate construction cleanup and not to vacuuming up dirt tracked in weeks later.

For more information on California’s state-mandated construction wage rate (“prevailing wage”) law, see Are Charter Cities Taking Advantage of State-Mandated Construction Wage Rate (“Prevailing Wage”) Exemptions? Also, see Assembly Bill 987 and Assembly Bill 988 – two comprehensive prevailing wage reform bills for California from 2012.

The Local Charter City Rebellion Against the Destructive California State Legislature Is Underway!

The Sacramento Bee published an editorial today (July 11, 2012) entitled “Will Cities Seize the Opportunity of Wage Ruling?” that urges charter cities to “seize the opportunity” and free themselves from costly state-mandated construction wage rates (also known as “prevailing wages”). It is the latest of numerous articles, editorials, blogs, and opinion pieces describing this court decision as a turning point for local governments seeking to provide adequate public services at a competitive and reasonable price. See my compilation of these articles here.

Regarding the July 2 California Supreme Court decision in State Building and Construction Trades Council v. City of Vista confirming the right of charter cities to establish their own policies concerning government-mandated construction wage rates, the Bee says the following:

…charter cities in California that use their own money to build new fire stations, libraries, sewer systems or other municipal facilities can ignore the state’s prevailing wage law.
The ruling is a blow to organized labor but a boon to taxpayers. If they have the political will to take advantage of it, struggling municipal governments can save a lot of money.

Do elected officials in charter cities have the political will to develop their own city prevailing wage policies, or even simply to exempt their purely municipal construction projects from state-mandated construction wage rates? They should proceed to do so, at least until the California State Legislature approves more reasonable definitions of public works through Assembly Bill 987 and approves more accurate methods of calculating prevailing wage through Assembly Bill 988? These two comprehensive, detailed, well-informed bills were introduced by Assemblywoman Shannon Grove (R-Bakersfield) but rejected in the Assembly Labor and Employment Committee on party-line votes (Democrats opposed, Republicans in support) on January 4, 2012. These bills need to be reconsidered!

Cities such as Costa Mesa and Escondido and Grover Beach [added August 19, 2012 – ed.] are definitely asking their citizens to approve robust, assertive charters. The cities of Temecula, Murrieta, Arroyo Grande, and Grover Beach are seriously considering asking their citizens to do the same. Several cities that already have charters are preparing to establish their own government-mandated construction wage policies.

Yes, unions will aggressively and viciously oppose any effort by the citizens of local governments to escape the oppressive mandates of the California State Legislature, long dominated by foolish union puppets from Los Angeles and San Francisco. Their opposition only confirms that city charters are a very powerful and meaningful way to assert local authority over local matters and provide public services at a better price for ordinary taxpayers.

State-Mandated Construction Wage Rate Requirements Remain on California Projects Worth $1001 to $2000

In January 2012, the California State Assembly’s Labor and Employment Committee considered two comprehensive, detailed bills introduced by Assemblywoman Shannon Grove (R-Bakersfield) to reform the definition of public works (Assembly Bill 987) and the method of calculating state-mandated construction wage rates, aka “prevailing wages” (Assembly Bill 988). The Democrat majority on the committee rejected them. A couple of committee members claimed that the bills were too ambitious and suggested a more modest approach.

On Wednesday, April 18, this same committee considered Assemblywoman Grove’s Assembly Bill 1958, which made two very modest changes to the state’s prevailing wage laws. It increased the project cost threshold for coverage from $1000 to $2000 to match the $2000 threshold set by the federal prevailing wage law called the Davis-Bacon Act. It also indexed the threshold to the same measure of inflation that the Democrats want to use for indexing the state minimum wage. (See Assembly Bill 1439, approved by this same committee at the same hearing.)

My former employer Associated Builders and Contractors (ABC) of California and I were the only witnesses in support of the bill.

Dutifully tramping up to the witness table to oppose the bill were several union lobbyists, who declared, among other things, that “this bill takes money out of the pockets of construction workers and gives it to contractors.” No one bothered to point out that these projects are actually paid for by taxpayers, not contractors. That’s why such projects are called “public works” – the public pays the bill.

Unions scored a victory, as the committee voted 5-2 on a party-line vote (Democrats opposed, Republicans in support) to reject the indexing of the threshold and continue to require contractors to pay the state-mandated construction wage rates to workers on construction projects worth $1001 to $2000. That’s one to brag about in the union newsletters!

How Does the California State Legislature Justify Exempting Itself from the Laws It Imposes on Private Businesses? It Uses Logical Fallacies.

I’ve always enjoyed the thorough but concise bill analyses written by Ben Ebbink, consultant for the Democrat majority on the Assembly Labor and Employment Committee, although he and I would probably disagree on almost every issue concerning labor and employment policies. (For example, he is a member of the Assembly Speaker’s Commission on Labor Education, while I would be on the opposing commission, if it existed.)

His analyses are generally fair and accurate and would be good sources for anyone writing a report on California labor laws.

Mr. Ebbink wrote a wide-ranging analysis of numerous provisions in the California Labor Code for Assembly Bill 2052, the Labor Law Reform Act of 2004, a bill introduced by former Assemblyman Ray Haynes (R-Temecula) that I prepared for sponsorship by my former employer, Associated Builders and Contractors of California. He also wrote an excellent analysis of various provisions concerning prevailing wage determinations and public works definitions for Assembly Bill 987 and Assembly Bill 988, two companion bills introduced in 2011 by Assemblywoman Shannon Grove (R-Bakersfield) that I also prepared for sponsorship by Associated Builders and Contractors of California.

These were two ambitious bills that took a comprehensive view of the state’s labor laws and amended or repealed numerous provisions that were ambiguous, costly, and unfair. All of these bills were defeated on party-line votes, of course: Democrats opposed, Republicans in support.

Now, Mr. Ebbink recently was dealt with a difficult task: analyzing Assembly Bill 1948, a bill introduced by Assemblywoman Shannon Grove (R-Bakersfield) that extends the state’s wage and hour laws that now apply to private employers to the California State Legislature as an employer. The Assembly Labor and Employment Committee will meet tomorrow (Wednesday, April 18, 2012) at 1:30 p.m. in Room 447 of the Capitol to consider this bill and numerous other bills.

California’s extensive wage and hour laws produce a lot of confusion and a lot of litigation. While I acknowledge there are employers who willfully take advantage of their California employees and fail to follow the state’s laws concerning overtime, meal and rest periods, vacations and holidays, sick pay, working conditions, and all the other provisions of the state’s 17 regulatory Industrial Wage Orders, employers can easily misinterpret these laws, and unions and trial lawyers can easily exploit them for ulterior motives. One California law firm that represents unions even produces a guidebook called Using the California Labor Laws Offensively: Organizing Through Enforcement of State Employment Laws.

For 15 years, I’ve heard legislators and lobbyists declare that the California State Legislature is exempt from these same wage and hour laws that sometimes cause such misery for employers. Pointing this out always elicits groans and grumbles from business owners. People assume – probably correctly – that the legislature does not apply those laws to itself because those laws can interfere with a smooth and flexible relationship between reputable employers and employees.

My own letter in support of Assembly Bill 1948 (the only submission made about the bill) takes that assumption and mocks the unabashed hypocrisy of the legislature and the pitfalls that can result from the state’s wage and hour laws:

Dayton Letter in Support of Assembly Bill 1948

Assuming there is no documented legislative history explaining the rationale behind exempting the California State Legislature from wage and hour laws, what would an analysis of Assembly Bill 1948 contain?

The tone of the official committee analysis of Assembly Bill 1948 seems to assume that Assemblywoman Grove is using this bill as a weapon to trap the legislature in a Catch-22: either the legislature believes in the wage and hour laws it imposes on private businesses and therefore places itself under those same laws, or else it continues the legislative exemption and confirms that it is not desirable for an employer to be covered by these laws.

Circumventing this dilemma, Ebbink instead uses a rhetorical counter thrust, pointing out that to be consistent, Assemblywoman Grove needs to amend the bill to apply certain employment policies of the legislature to private employers, including paid sick leave and paid bereavement leave. He also states that Assemblywoman Grove should amend the bill to impose card check union recognition policies on private employers (similar to the proposed Employee Free Choice Act from the 111th Congress on the federal level) that already apply to some state and local government employees. These issues have been hotly contested at the state legislature in recent years.

But this rhetorical argument includes three logical fallacies that are closely-related:

1. First, the analysis presumes that because Assemblywoman Grove isn’t seeking complete consistency between the employment laws of the legislature and the employment laws of private businesses, she is wrong to seek partial consistency. I believe this could be classified as a variation on the tu quoque argument, where an argument is deemed to be wrong because the proponent doesn’t act consistently with that position. The argument can be rebutted by pointing out that the bill is strictly and deliberately limited to applying wage and hour laws imposed on the private sector to the California State Legislature, and not about creating exact and complete consistency between all laws of the legislature and laws imposed on private employer-employee relations.

2. The second logical fallacy is what I believe could be classified as a red herring argument: the claim that Assemblywoman Grove is failing to make private businesses operate by the same rules adopted for the legislature or for certain state and local government employees. The argument can be rebutted by pointing out that the bill is about applying wage and hour laws imposed on the private sector to the California State Legislature, and not about applying new laws to private businesses.

3. Third, when the analysis insinuates that the legislature can’t make itself follow laws it applies to private businesses because the legislature has adopted policies that aren’t imposed on private employers, it sets up a non sequitur. How did the discussion about Assembly Bill 1948 suddenly turn to whether or not private employers should automatically be unionized if a certain percentage of employees sign union authorization cards? The two issues may be related on a general level, but rejecting Assembly Bill 1948 is not a conclusion that rightfully follows from the observation that private businesses aren’t subject to a state-imposed Employee Free Choice Act.

The Assembly Labor and Employment Committee will meet tomorrow (Wednesday, April 18, 2012) at 1:30 p.m. in Room 447 of the State Capitol to discuss Assembly Bill 1948.