Status: Assembly Labor Committee Agenda
The Business Council strongly opposes this legislation that would dramatically and unfairly alter the relationship between a business or a non-profit organization and any sole proprietor that they contract with as an independent contractor.
This bill is presented as a means to help "vulnerable" sole proprietors collect payments due them pursuant to completed contracts. While these proprietors already have an available remedy, through a breach of contract suit, this bill would create an incredibly one-sided cost-recovery system through the state Department of Labor.
Specific concerns regarding this bill include the following:
- This law would obliterate the concept of independent contractor, making him or her no different than an employee, who must be paid for work performed regardless of the quality of work. Independent contractors already have a remedy if they feel they performed the work pursuant to a contract and their client breached the contract; namely, a breach of contract action.
- This bill would make the Department of Labor (DOL) a debt collector for select private businesses and would drag the DOL in private disputes about quality of work, timeliness of work and other contractual matters. The bill presumes that these contracts would be based on hourly pay (as it is patterned on existing provisions regarding employer/employee relations), but many contracts are based on deliverables and outcomes, not hours expended. It is unclear how the DOL would determine whether the sole proprietor's contractual obligations had been met and whether the alleged underpayment or nonpayment was owed, and it is far from certain that the DOL would have the expertise to make such determinations.
- The bill contains no requirement for private contractors to engage in any meaningful attempt to collect the debt alleged to be owed prior to engaging DOL.
- Whereas documenting the terms of business agreements are generally the obligation of both parties, this bill would shift the requirement to a client. This is especially interesting, as, in some cases, the contractor may be far more experienced and sophisticated than the client (as small businesses and /or non-profits may be the subject of these collection efforts) who may not be aware of these requirements if they are put into place.
- Normally, it is the enforcing party who is required to prove the terms of an agreement, and they cannot enforce terms that they cannot prove. This bill would completely shift the burden and the client could be "guilty" of failing to pay even in the absence of substantiating proof from the contractor. Failure to adequately document a contract would create a presumption in favor of the contractor; and the bill says nothing about the ability of the client to rebut this presumption by, for example, providing testimony or other evidence.
- Attorneys' fees are not typically available in breach of contract cases, but this bill provides for attorney fees for a successful sole proprietor. Consistent with the one-sided nature of this bill, it does not provide the client with attorneys' fees if the claimed payments are found NOT to be owed.
- A single failure to pay a sole proprietor on time pursuant to a contract could result in criminal liability for the contractor, with possible jail time, and does not even require for a knowing or intentional violation on the part of the client. There are no defenses, even if the person, in good faith, believed the amounts should not be paid.
- Under traditional contracting law, liquidated damages usually have to be reasonably related to the damages one would suffer by a breach of contract. In contrast, the provision of this bill are in effect punitive damages which are not typically permitted in contract cases.
- The civil penalty (payable to the Commissioner of DOL) of double the amount owing to the complainant, together with the possibility of liquidated damages of 100% of the amount owed to the complainant, poses the a risk of "quadruple" payments; compensatory payment plus liquidated damages to the complainant as well as two-times compensatory payment as a civil penalty to the Commissioner of DOL.
Regardless of concerns that sole proprietors may have with the ability to enforce contracts through the courts, this bill presents an unfair, one-sided approach that brings the full weight of a state regulatory agency to bear on a party to a contract dispute.
For the reasons detailed above, The Business Council respectfully opposes this bill.