DIR $43k Fine on $23k Contract, Failure to Provide Payroll Records

Read the entire DIR Civil Wage Assessment against Serenity Fire Protection 10/4/13 here.

Serenity Fire Protection worked on the Orange County Fire Station #46 (Project) in Orange County in 2010. The Assessment determined that $46,500.00 in statutory penalties under Labor Code section 1776 was due.

The issues for decision are:

- Whether Serenity failed to timely submit certified payroll records and is therefore liable for penalties under section 1776.

- Whether penalties under section 1776 should be assessed at $25.00 per calendar day per worker or $100.00 per calendar day per worker.

The Director finds that Serenity has failed to carry its burden of proving that the basis of the Assessment was incorrect. Therefore, the Director issues this Decision affirming the Assessment.


On November 19, 2010, Serenity entered a Subcontract Agreement (Subcontract) with Erickson-Hall Construction Company (Erickson-Hall), for a price of $23,760.00, including materials, for installation of an overhead fire sprinkler system at the Orange County Fire Station #46, which was being constructed under a prime contract entered between the City of Stanton and Erickson-Hall. Exhibit 3 to the Subcontract stated that "[t]he Subcontractor agrees to comply with all portions of Labor Codes including 1771, 1774, 1775, 1776, 1777, 1813, and 1815. Exhibit 6 to the Subcontract consists of a copy of sections 1770 through 1815, including section 1776, subdivision (g), which, in 2010, provided for a penalty of $25.00 for each calendar day or part thereof for each worker upon failure to comply within 10 days to a written notice requesting certified payroll records (CPRs).

By certified mail deposited on April 19, 2012, DLSE sent a Request for Certified Payroll Records (Request) to Serenity at its address of record, 417 S. Associated Road, Brea, California 95825. The Request asked for copies of time and payroll information for all workers employed by Subcontractor on the Project, including health and welfare, pension, vacation/holiday, and training plan contributions. Enclosed with the Request was a form for the Subcontractor's use in certifying under penalty of perjury that the submitted records were true, full and correct copies of originals which depict the payroll records of the actual disbursements to the workers. The Request specified that failure to provide the CPRs within 10 days of receipt of the request would subject Subcontractor to a penalty of $100.00 per calendar day or portion thereof for each worker until the records are received, citing section 1776, subdivision (h). DLSE's witness, Reynaldo Tuyor, testified he was instructed by his supervisor to use the $100.00 penalty rate instead of the $25.00 rate for section 1776 violations occurring after January 1, 2012. That date is the effective date of an amendment to section 1776 that increased the penalty rate from $25.00 to $100.00 enacted by Assembly Bill (AB) 551 (stats. 20I1, ch. 677, § 2.5).

Black testified that while he bid on a few public work contracts and was awarded a few, including the one for the Project, he had an incomplete understanding about the reporting requirements for public work projects. Serenity was a small company with no administrative staff; Black performed the paperwork duties himself. The last date a Serenity employee was on site was in July 2011. During the Subcontract term, Black told Erickson-Hall that he could not pay the required prevailing wage rates and Erickson-Hall cancelled his subcontract in response. On September 14, 2011, Erickson-Hall emailed Serenity that it had two payroll registers and copies of cleared checks from Serenity's bank, but no certified payroll records. In that email, Erickson-Hall asked for the full names, addresses and social security numbers of each employee, work classifications for the employees, apprentice identification and training program used. Serenity provided Erickson-Hall with that information on September 26, 2011.

Black admitted not producing the CPRs to DLSE, stating he was concerned that the Subcontract would be cancelled. Yet, he also testified that the Subcontract had already been cancelled by the time he produced payroll information to Erickson-Hall in September 2011. Black testified that he could not respond to the Request because a response would entail providing information on wages and garnishments, fringe benefits, and a certification that those were the wages he paid. Black said he could not certify those facts under penalty of perjury because he had not paid prevailing wage rates.

Hall had previously requested CPRs from Serenity and it had refused to provide them. As a result, Erickson-Hall felt forced to bring in another firm to complete Serenity's contract work. Erickson-Hall told Serenity that it expected that, once it turned over the documents demanded by DLSE without proof of payment by Serenity, DLSE would demand payment of all unpaid prevailing wages, penalties, fringe benefits and interest. Erickson-Hall advised Serenity to document what was paid to reduce its ultimate liability. Serenity responded to Erickson-Hall's letter by email dated July 17, 2012, stating all information was sent to Erickson-Hall on September 1, 2011, and all he received from Erickson-Hall was a cancelled contract in response and no payments outside of payment to some of its suppliers. Ultimately, Erickson-Hall paid DLSE $9,561.86 for Serenity's underpayment of prevailing wages to five Serenity employees, including Black.

After DLSE received no CPRs from Serenity in response to the Request, it issued the Assessment dated August 6, 2012, and served it on Serenity by first class, certified mail on August 6, 2012. The Assessment imposes a $100 per calendar day per worker penalty on the basis of 5 workers for 93 days. DLSE determined the 93 day period by counting the number of days from the April 20 date of receipt of the Request to the date of the Assessment, minus 15 days for the 10-day statutory period allowed for a response to the Request and a mailing period. DLSE determined the number of workers based on records produced by Erickson-Hall. Serenity does not dispute it had five workers on the Project.


DLSE's Penalty Assessment Under Section 1776 Is Appropriate.

DLSE showed that Serenity was served with the Request and the Assessment via certified mail to the Associated Road address. For service of a request for CPRs, the applicable regulation does not prescribe any particular type of service. Instead, it states that the request "shall be in any form and/or method which will assure and evidence receipt thereof." (Cal. Code. Regs., tit. 8, § 16400, subd. (d).) The Associated Road address is the same one Serenity used for itself in the Subcontract and on its Request for Review of the Assessment. The mailing constituted effective service of the Request on Serenity. This conclusion is supported by the fact that Serenity has not denied timely receipt of the Request.

Serenity's Claim That the Director Would Improperly Apply a Retroactive Law to Affirm DLSE's Assessment at the $100.00 Penalty Rate Must Also Be Rejected.

Serenity argues that application of the $100.00 penalty rate instead of the expired $25.00 rate would constitute a retroactive application of section 1776. For that argument, Serenity relies on Aetna Cas. & Surety Co. v. l.A.C. (1947) 30 Cal.2d 388,391, Evangelatos v. Superior Court (1988) 44 Cal. 3d 1188, 1206, and Landgraf v. US! Film Products (1994) 511 U.S. 244, 269. Those cases generally stand for the proposition that where a statute operates to increase a party's liability for past conduct, it is impermissibly retroactive unless the Legislature intends a retroactive effect.

When a statute's application to a given case is challenged as retroactive, the analysis begins with the presumption that statutes operate prospectively absent a clear indication that the Legislature intended otherwise. (Californians For Disability Rights v. Mervyn 's, LLC (2006) 39 Cal.4th 223, 230.) The legislative history of AB 551 discloses no legislative intent for the $100.00 penalty rate under section 1776 to operate retroactively. (See, e.g., Sen. Rules Com., Off. of Sen. Floor Analyses, 3d reading analysis of AB 551 (2011-2012 Reg. Sess.) as amended June 29, 2011.) The question, then, is whether applying that rate under the facts of this case amounts to an impermissible retroactive application of law.

"A statute is retroactive if it substantially changes the legal effect of past events." (Kizer v. Hanna (1989) 48 Cal.3d 1, 7.) "A statute does not operate retroactively merely because some of the facts or conditions upon which its application depends came into existence prior to its enactment." (Id., at p. 8.) The adoption of the $100.00 penalty rate did not "substantially change the legal effect of past events because the conduct giving rise to the liability for a penalty occurred after the effective date of the increase in the penalty rate. An exhibit to the Subcontract lists former section 1776 with its $25.00 rate.


1. Affected subcontractor Serenity filed a timely Request for Review of the Civil Wage and Penalty Assessment issued by DLSE with respect to the Project.

2. Serenity entered the Subcontract on the Project, provided five employees to the Project, and subjected itself to compliance with section 1776.

3. On April 19, 2012, DLSE served Serenity with a request for certified payroll records, to be produced to DLSE within 10 days from the receipt of the request, or be subject to penalties under section 1776, subdivision (h) in the amount of $100.00 per calendar day or portion thereof for each worker until the records were received. The request was received on April 20, 2012, by Serenity's agent at the address Serenity uses for mailing purposes.

4. Serenity failed to timely submit certified payroll records pursuant to the DLSE request, as required by section 1776.

5. DLSE properly assessed penalties against Serenity under section 1776, subdivision (h) for its failure to provide certified payroll records to DLSE within 10 days of April 20, 2012.

6. In light of the findings above, Serenity is liable for penalties under section 1776, subdivision (h) in the total amount of $46,500.00.

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