Combating Wage Theft: Mechanics’ Liens and the California Fair Day’s Pay Act

Published November 25th, 2015 -  - 11.25.1510


The working poor need more than an increase in the minimum wage.  They need effective enforcement of the wage laws already on the books.  The ideal would be to expand to all workers the long-established principle of the mechanics’ lien, which allows any worker who performs labor to improve real property to assert a lien against the property for unpaid wages.  On October 11, 2015, California’s governor signed into law SB 588, the Fair Day’s Pay Act, which is a partial solution to the problem of wage theft, although it does not go far enough to create a wage lien, like a mechanics’ lien, to remedy wage theft.  The difference between the law that was enacted and the wage lien law that was first proposed reveals much is still to be done.

Wage theft is endemic in the low-wage industries where immigrants and the working poor toil.  While California has some of the most protective laws in the country, in Los Angeles alone, low-wage workers lose an estimated $26.2 million to wage theft every week.

Thousands of workers annually file claims for earned unpaid wages with the office of the Labor Commissioner of the California Department of Industrial Relations.  The California Labor Commissioner often issues an order against the corporate entity that hired the worker only to discover that the corporation is defunct and the judgment is uncollectable.  In many cases, the owners anticipate wage claims and transfer the corporation’s assets to other corporations or to themselves so that they can continue to operate the business and bilk their employees and other creditors.  A study by the UCLA Labor Center and National Employment Law Project found that only 17 percent of workers who won wage judgments from the California Labor Commissioner between 2008 and 2011 were able to collect even a penny of the judgment.

Since 2013, the Labor Commissioner and the nonprofit Wage Justice Center have had a partnership to enforce the thousands of unpaid wage judgments, but it takes hundreds of hours for attorneys and investigators to trace the assets from the judgment debtor to a corporation or individual that can be held liable for the unpaid wages.

The solution is to streamline enforcement of wage claims.  Mechanics’ lien laws in most every state offer an excellent model.  Decades ago, construction contractors successfully urged legislatures to adopt mechanics’ lien laws because contractors often had difficulty collecting payment for work performed.  The mechanics’ lien law allows the contractor or the construction worker to assert a lien against the property to secure payment.  Because the lien is against the property, the unpaid wages can be collected even if the corporation has gone out of business or transferred its assets to an individual or another corporation.  Nor does enforcement depend on hiring a lawyer or filing litigation.  It’s easy to file a mechanics’ lien and the vast majority of mechanics’ liens are resolved through negotiation.  Once the worker or contractor files the lien and proves that wages are owed, the landowner (often a bank) has a strong incentive to insist that the person or entity that employed the worker pay the claim so that the lien can be lifted and the property can be refinanced or sold.

The Wage Justice Center, with a group of dozens of labor and community organizations, persuaded the California Assembly to enact a bill (AB 2416) in 2014 that would have extended the mechanics’ lien principal to any worker.  Car wash workers, restaurant workers, and other workers in industries where wage theft is endemic finally would have the same rights that plumbers and bricklayers have to ensure payment.

California finally passed a weaker bill, the Fair Day’s Pay Act (SB 588).  SB 588 provides the Labor Commissioner the power that law currently gives other judgment creditors to levy on the property of judgment debtors.  Under the Fair Day’s Pay Act, the Labor Commissioner can levy on the property of any person or company that has in its possession or control any of the assets of the employer that owes the unpaid wages.  The Fair Day’s Pay Act also provides that employers that fail to pay wage judgments may lose their business license unless they post a bond so that there will be money in the future to pay judgments for unpaid wages.

The Fair Day’s Pay Act gives the Labor Commissioner the power to ensure that the wage judgments it issues can be enforced against a person or entity that is responsible for the wage theft and actually has the assets to pay the judgment.  While it still depends on an understaffed state agency to pursue the claims, and is therefore not as powerful as the mechanics’ lien laws that allow any construction contractor or worker to ensure payment, at least it is the first step toward ensuring that the minimum wage – whether it is $7.25 or $15 per hour – is actually paid.

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