Bulletin: New California Overtime Law Could Cost Unwary Construction Contractors Millions

Construction Industry Exemption Removed

Many construction contractors will be surprised to discover that a new state statute taking effect on January 1, 2000, obligates them to pay construction workers overtime for all hours worked beyond eight in one day and on the seventh consecutive workday in one week. Unfortunately, many contractors will learn about this change the hard way: when the California Division of Labor Standards Enforcement ("DLSE") orders them to pay the unpaid overtime for all underpaid workers plus penalties $50 per unpaid worker per pay period.

The stated purpose of 1999 Assembly Bill ("AB") 60 was to "restore" California's daily overtime requirement, which was repealed by the California Industrial Wage Commission ("IWC") in 1998. Under the pre-1998 law, the construction industry was exempted from the daily overtime requirements imposed on many other industries. However, unbeknownst to most of the industry and observers of the bill, AB 60 removed the construction industry's exemption. As a result, employers in the construction industry must pay their workers one and one half the regular rate of pay for all hours worked in excess of eight in one work day or forty in one work week, and for all hours worked on the seventh consecutive day in one work week. In addition, they must pay double time for all hours worked in excess of twelve in one day or eight on the seventh consecutive day in one work week.

There are two exceptions to these daily overtime requirements. First, AB 60 does not apply where the work is covered by a Collective Bargaining Agreement ("CBA"), if the CBA provides for some overtime premium and for regular wage rates at least 30% above the state minimum wage (i.e., at least $7.475 per hour under the current law). Second, employers can implement an "alternative workweek schedule" upon approval of two thirds of the workforce which allows employees to work shifts of up to ten hours without payment of overtime so long as the employees' weekly hours do not exceed forty. Employers wishing to implement alternative workweek schedules should consult with counsel to ensure that they are implemented in compliance with AB 60's detailed requirements.

Perhaps the most ominous aspect of AB 60 is the enforcement authority it gives to the DLSE. The statute provides that DLSE may seek civil penalties from a non-compliant employer in the amount of $50 per employee per pay period for an initial violation plus the full amount of underpayment for each affected employee. As a practical matter, that means that the complaint of a single employee - or would-be union representative - can lead to claims over the coming years for six or seven figure damages. To avoid this potentially back-breaking liability, contractors must immediately implement policies and procedures to ensure full compliance with AB 60.

The Thelen Reid Report is published as an information service to clients and friends. Please recognize that the information is general in nature and does not constitute legal advice. The attorneys listed above would be pleased to discuss in greater detail the information in this report and its application to your specific situation. We welcome your comments and suggestions.