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Navigating a Civil Wage and Penalty Assessment on a Public Works Project

In recent years, the Division of Labor Standards Enforcement (“DLSE”) has stepped up the monitoring and investigation of public works projects throughout California and the enforcement of California’s prevailing wage laws. If the DLSE determines that there was a violation of the prevailing wage laws, it will issue a Civil Wage and Penalty Assessment (“CWPA” – usually pronounced “kwapa”) to the contractor and its surety. If it is a subcontractor who is accused of underpaying its workers, the CWPA will also be issued to the prime contractor and its surety. If you are the prime contractor, you will want to pay close attention to the CWPA and the deadlines, as you, and possibly your surety, are equally responsible for paying the wages and, potentially, the penalties owed by your subcontractor.

If you believe that there is a basis for contesting the amount of the wages and/or penalties, you may submit a request for a settlement meeting within 30 days of service of the CWPA. This is often the best opportunity for you to present your defenses to the CWPA and reach a settlement, so be sure to come prepared with all your documentation that supports your position. You should not got to a settlement meeting without a lawyer who is experienced in handling labor claims before the DLSE.

You have 60 days from the date of service of the CWPA to submit a Request for Review. Once you submit your request, a hearing officer will be appointed, who will act as the judge and jury at the formal hearing. The formal hearing is basically a trial where each side gets to present their evidence. Submission of the Request for Review also triggers your right to review the evidence that the DLSE used to put together the CWPA. You should not submit a Request for Review on your own. Get an experienced lawyer to do it. That lawyer will get copies of the DLSE’s evidence as soon as possible to be able to evaluate it and prepare your case, maybe even before the settlement meeting.

The 60-day deadline to submit a Request for Review is particularly important since failure to timely submit a Request for Review can result in a judgment in the full amount of the CWPA (wages and penalties) being entered against subcontractor and/or prime contractor.

Another key deadline to keep in mind is the deadline for depositing the full amount of the CWPA in order to avoid liquidated damages. Under Labor Code section 1742.1, after 60 days of the service of the CWPA, the subcontractor, prime contractor, and surety shall be liable for liquidated damages in an amount equal to the unpaid wages, if unpaid wages are found to be due. This basically means that the subcontractor, prime contractor, and surety could end up being on the hook for double the amount of the wages identified in the CWPA, on top of any wages and penalties found to be due.

Keeping accurate records throughout the project is key in fighting a CWPA. For all public works projects, all contractors and subcontractors are required keep accurate payroll records that include the following information for each worker: (1) first and last name; (2) address; (3) social security number; (4) work classification; (5) straight time and overtime hours worked each day and week; and (6) actual wages paid to each worker. For the “work classification” requirement, the classification must refer to the Department of Industrial Relation’s published classification titles. For example, they must be labeled “Laborer Group 1” or “Carpenter” and not just “journeyman” or “apprentice.” Keep in mind that a single worker can perform work under several different work classifications each day, so be sure to keep track of the actual hours each worker spends performing work under each separate classification.

It is also a good idea to maintain documentation that supports the hours and wages identified in the payroll reports. For example, have each employee sign in and sign out every day, at the beginning and end of the work day, as well as for meal breaks. If you are the prime contractor, you may want to keep your own separate sign-in sheets for all workers on the project site in addition to requiring your subcontractors to maintain their own sign-in sheets. Other documentation showing the number of workers, the scope of work, and the typical hours worked are all useful in defending the wage claim. These can include documents such as daily reports, inspector reports, subcontracts, and timesheets.

Other key pieces of documentation are the paystubs and cancelled checks showing actual payments to the individual workers. If you are the prime contractor, you may consider getting copies of your subcontractor’s paychecks or check stubs throughout the project to ensure that each worker is actually getting paid the proper wage as identified in the prevailing wage determinations. Getting releases or receipts signed by each worker acknowledging that they have actually received the money can also be helpful in proving they were paid the proper wages. However, these releases or receipts alone may not be enough when faced with a CWPA, so be sure to keep bank records showing the actual payments made to each worker.

If you are the prime contractor and the accused party is your subcontractor, you also may be able to take advantage of certain “safe harbor” provisions in the Labor Code to avoid or reduce your liability for Labor Code section 1775 penalties. To do so, you must: (1) include a copy of the provisions of Labor Code sections 1771, 1775, 1776, 1777.5, 1813, and 1815 in the subcontract; (2) monitor the payment of the specified general prevailing wages by the subcontractor to its employees by periodically reviewing the certified payroll records of the subcontractor; (3) take corrective action to halt or rectify the failure of the subcontractor to pay its workers the proper prevailing wages as soon as you become aware of this failure by, among other things, retaining sufficient funds due to the subcontractor for work performed on the project; and (4) prior to making the final payment to the subcontractor for work on the project, obtain an affidavit signed by the subcontractor under penalty of perjury that the subcontractor has paid the specified prevailing wages and any amounts due pursuant to Labor Code section 1813.

The more documentation you have showing the actual hours worked and actual wages paid for each worker, the better position you will be in when responding to the CWPA and negotiating a quick settlement with no or reduced penalties. Also, having detailed and accurate documentation and, if you are a prime contractor, closely monitoring your subcontractors’ documentation, puts you in a better position to avoid having a CWPA issued against you or your subcontractor in the first place.