Mechanic’s Lien Litigation: Combating Wage Theft in the Day

Mechanic’s Lien Litigation: Combating Wage Theft in the Day Laborer Community Speakers: Matthew N. Sirolly Oscar Espino-Padron Renee Amador Pathways to Justice Conference June 10 – 11, 2015

Session Overview 1. Wage theft explained, impact on low-income communities 2. Day laborer community demographics and the challenges to countering wage theft 3. Mechanic’s lien law overview and use as an innovative approach to recover unpaid wages for day laborers 4. Legislative proposals inspired by mechanic’s lien law Pathways to Justice Conference June 10 – 11, 2015

Wage Theft: What is it? Wage theft: non-payment or underpayment of minimum and/or overtime wages, failure to provide rest and meal breaks Particularly impacts low-wage workers, often toiling in the underground economy Los Angeles is the wage theft capital of the U.S. (Source: “Wage Theft and Workplace Violations in Los Angeles: The Failure of Employment and Labor Law for Low-Wage Workers” (2010), Ruth Milken, et al; “Hollow Victories: The Crisis in Collecting Unpaid Wages for California’s Workers” (2013), Eunice H. Cho, et al.) Pathways to Justice Conference June 10 – 11, 2015

Wage Theft: The Statistics Various studies have looked at the wage theft crisis in Los Angeles and in California generally – 30% of low-wage Los Angeles workers surveyed were paid less than minimum wage in the week prior to the survey – 80.3% of low-wage Los Angeles workers experienced a meal break violation in the week prior to the survey – 26.2 million is stolen from low-wage workers each week in Los Angeles as a result of wage theft – 83% of workers who receive a judgment for unpaid wages never recover a dime in California (Source: “Wage Theft and Workplace Violations in Los Angeles: The Failure of Employment and Labor Law for Low-Wage Workers” Ruth Milken, et al. (2010); “Hollow Victories: The Crisis in Collecting Unpaid Wages for California’s Workers” Eunice H. Cho, et al. (2013)) Pathways to Justice Conference June 10 – 11, 2015

Wage Theft: The Statistics (cont’d) Wage theft has an impact on the health of lowincome communities – Poor housing conditions – Food insecurity forcing workers to rely on cheaper processed foods, leading to obesity and diabetes – Stress leading to poor physical and mental health Disadvantages law-abiding businesses & reduces local, state and federal tax revenue (Source: “Health Impact Assessment of Proposed Los Angeles Wage Theft Ordinance”, Humane Impact Partners (2014); “Workers Without Rights: The Informal Economy in Los Angeles”, Economic Roundtable (2002).) Pathways to Justice Conference June 10 – 11, 2015

Day Laborer: Demographics Persons seeking work at informal hiring sites, such as in front of businesses, home improvement stores, gas stations, and streets – 117,600 are either working or looking for work daily (fluid) – 80% are undocumented immigrants – 87% from Mexico or Central America – 59% received 8 years or less of formal education – 43% employed by construction contractors – Top five occupations include construction, painting, roofing and drywall installation (Source: “On the Corner: Day Labor in the United States”, Abel Valenzuela , et al (2006); “Day Labor in the Golden State”, Public Policy Institute of California and Arturo Gonzalez (2007).) Pathways to Justice Conference June 10 – 11, 2015

Day Laborer: Wage Theft Nature of the employer-employee relationship – Informal – Cash – Temporary Day laborers experience serious workplace abuses, particularly wage theft – 44 % denied breaks or food within two months of survey – 49 % were denied wages – 48 % received less than promised – 27 % abandoned at worksite (Source: “On the Corner: Day Labor in the United States”, Abel Valenzuela , et al (2006); “Day Labor in the Golden State”, Public Policy Institute of California and Arturo Gonzalez (2007).) Pathways to Justice Conference June 10 – 11, 2015

Mechanics’ Liens to Counter Wage Theft in Day Laborer Community Mechanic’s lien (or laborer’s lien): pre-judgment remedy that allows a laborer to record a lien claim in the amount of wages owed against the real property on which the laborer made a permanent improvement and to foreclose on that lien if the claimed wages are not paid. Mechanic’s lien clinics in Los Angeles County and Orange County (See Attachment 1) Pathways to Justice Conference June 10 – 11, 2015

Origin of Mechanics’ Liens in U.S. In existence since founding of United States – Thomas Jefferson and James Madison lobbied Maryland legislature for mechanic’s lien law in 1791 to encourage development in D.C. – U.S. rich in land but poor in capital and labor – Allowed small landholders to use land as security for improvements (Source: “A Practitioner's Guide to Construction Law”, John G. Cameron) Premised on the idea of unjust enrichment – e.g. Burton v. Sosinky (1988) 203 Cal.App.3d 562, 568; T.O. LX, LLC v. Superior Court (2008) 65 CA4th 140, 146. Pathways to Justice Conference June 10 – 11, 2015

Mechanic’s Lien Law in California California Constitution: “Laborers of every class, shall have a lien upon the property upon which they have bestowed labor for the value of such labor ” (Article 14, Section 3) Codified by the legislature under California Civil Code section 8400, et seq. – Lien right available to contractors, equipment and material providers, laborers Pathways to Justice Conference June 10 – 11, 2015

Mechanic’s Lien Pre-requisites Pre-requisites for a worker to qualify for a mechanic’s lien claim (basic checklist): (1) Laborer (i.e. employee) (2) Permanent “work of improvement” on the property (3) No more than 90 days have passed since completion of the work of improvement (generally) Pathways to Justice Conference June 10 – 11, 2015

(1) Laborer (i.e. Employee) Laborer – Laborers are entitled to a mechanic’s lien for providing labor for a work of improvement. (Cal. Civ. Code § 8400) – Person who, acting as an employee, performs labor or bestows skill or other necessary service on a work of improvement. (Cal. Civ. Code § 8024(a)) Pathways to Justice Conference June 10 – 11, 2015

Independent Contractors Unlicensed independent contractors – Barred from bringing any action for compensation for performance of any act unless licensed. (B&PC § 7031(a)). – Possible liability to property owner and criminal penalties and fines. (B&PC § 7031(b); B&PC §§ 7028(b)-(d)). Person engaged in activities as an employee, who receives wages, and does not have control over performance of work is exempt from license requirements. (B&PC § 7053). Pathways to Justice Conference June 10 – 11, 2015

(2) Work of Improvement Work of improvement broadly defined (Cal. Civ. Code § 8050(a)), includes: – Construction, alternation, repair, demolition or removal, in whole or in part, of, or addition to, a building – Seeding, sodding or planting for landscaping purposes – Filling, leveling or grading of real property – Includes “site improvements” (Cal. Civ. Code § 8402) Improvements must be permanent Pathways to Justice Conference June 10 – 11, 2015

(3) Recording Deadline Laborer must record mechanic’s lien claim after departing from property and within the earlier of the following (Cal. Civ. Code § 8414): – 90 days after completion of the work of improvement – 30 days after a notice of completion or cessation of labor is recorded by owner Pathways to Justice Conference June 10 – 11, 2015

Completion of Work of Improvement Completion of work of improvement occurs upon any of the following (Cal. Civ. Code § 8180(a)): – Actual completion – Occupation or use by the owner, accompanied by a cessation of labor – Cessation of labor for a continuous period of 60 days – Recordation of a notice of cessation after cessation of labor for a continuous period of 30 days Pathways to Justice Conference June 10 – 11, 2015

Preparing and Serving the Mechanic’s Lien Lien document must conform to requirements under Cal. Civ. Code § 8416 (See Attachment 2) – e.g. statement of claimants demand, description of property sufficient for identification, etc. – Notarization not required Copy of mechanic’s lien must be served on owner or reputed owner prior to recording – Failure to serve makes lien unenforceable as a matter of law (Cal. Civ. Code § 8416(c)-(e)) Pathways to Justice Conference June 10 – 11, 2015

Serving Copy of Mechanic’s Lien Copy of mechanic’s lien must be served as follows: – Owner or reputed owner must be served with copy via first-class (with certificate of mailing), certified mail, or registered mail at residence or place of business (Cal. Civ. Code § 8416(c)(1),(2)) – If owner or reputed owner cannot be served, copy can be served on direct contractor or construction lender instead (Cal. Civ. Code § 8416(d)) Pathways to Justice Conference June 10 – 11, 2015

Recording Mechanic’s Lien After service of copy, mechanic’s lien must be recorded – Record with County Recorder where property is located (Cal. Civ. Code § 8060(b)) – Recordation of mechanics lien in good faith is absolutely privileged (Cal. Civ. Code § 47(b)) – Not liable for slander of title even if claim is subsequently held invalid (e.g. Pisano v. Taggart (1972) 29 CA3d 1, 24) Record in person if possible to avoid backlogs and possible rejection of lien by County clerks Pathways to Justice Conference June 10 – 11, 2015

Enforcing Mechanic’s Lien Complaint must be filed within 90 days after lien is recorded, otherwise lien expires and becomes unenforceable (Cal. Civ. Code § 8460(a)) (See Attachment 3) Extension to foreclose can be provided by owner, but lien must be enforced no later than 1 year after completion of work of improvement (Cal. Civ. Code § 8460(b)) Pathways to Justice Conference June 10 – 11, 2015

Enforcing Mechanic’s Lien (cont’d) Amount recoverable – Lesser of the reasonable value of the work provided or the price agreed upon by claimant and person that contracted for the work (Cal. Civ. Code § 8430). – Interest allowed by law or contract (Cal. Lab. Code §218.6) – Cost of recording lien (Cal. Civ. Code § 8464) – Generally cannot recover attorney’s fees Record lis pendens on or before 20 days after filing action (Cal Civ. Code § 8461) (See Attachment 4) Pathways to Justice Conference June 10 – 11, 2015

Other Issues and Considerations Be prepared to release unenforceable, invalid mechanics’ liens (Cal. Civ. Code §§ 8480, 8482) (See Attachment 5) – Owner required to give 10-day notice – Possible liability for reasonable attorney’s fees No preliminary notice requirement for laborers (Cal. Civ. Code § 8200(e)(1)) Check for “Notice of Non-Responsibility” if tenant (Cal. Civ. Code § 8444) Pathways to Justice Conference June 10 – 11, 2015

Policy and Legislative Efforts AB 1164 (died on Senate floor last year) – Expands existing Mechanic’s Lien to all sectors. Currently, construction workers can put a temporary hold (a lien) on the property of an employer who owes back wages while the case is being decided. – Modeled after Wisconsin’s wage lien law which has helped 80% of workers recover payment for wages owed, compared to fewer than 20% in California. – Alaska, Idaho, Maryland, New Hampshire, Texas, and Washington have also enacted wage lien laws. Pathways to Justice Conference June 10 – 11, 2015

Policy and Legislative Efforts Currently – SB 588 is pending in California Senate. It would provide some lien rights in limited situations to those working outside of the construction industry. – Los Angeles Wage Theft Ordinance currently under consideration includes a broad lien right for all employees. Looking toward the future – Possible expansion of mechanic’s lien remedy to other workers based on broad constitutional language (“Laborers of every class, shall have a lien upon the property upon which they have bestowed labor”)? Or statutorily changing requirement of “permanent” improvement to property? – Attorneys’ fees for mechanics’ liens filed by laborers. Pathways to Justice Conference June 10 – 11, 2015

Question & Answer Matthew N. Sirolly Oscar Espino-Padron Renee Amador The Wage Justice Center 3250 Wilshire Blvd., 14th Flr. Los Angeles, California 90010 Tel: (213) 273-8400 Fax: (213) 785-1708 Pathways to Justice Conference June 10 – 11, 2015