City Council Memorandum
TO: HONORABLE MAYO R AND CITY COUNCIL DATE: SEPTEMBER 19, 2023 FROM: COUNCILMEMBER RONA LDO FIERRO WARDS: ALL
SUBJECT: CONTRACTOR/SUBCONTRA CTOR TRANSPARENCY ORDINANCE
ISSUE:
Consider adoption of an Ordinance relating to license requirements of contractors and subcontractors.
RECOMMENDATION:
That the City Council introduce and subsequently adopt an Ordinance amending Chapters 5 and 16 of the Riverside Municipal Code to amend Section 5.04.300 – Business Tax and add Section
16.04.300 relating to license requirements of contractors and subcontractors.
COMMITTEE RECOMMENDATION:
The Economic Development, Placemaking, and Branding/Marketing Committee met on June 22, 2023, with Chair Fierro and Member Hemenway present, and Vice Chair Edwards absent, to discuss a contractor/subcontract or transparency ordinance. Af ter discussion, the Committee members present voted unanimously to recomm end that the City Council adopt the proposed ordinance.
BACKGROUND:
Wage theft is a widespread problem in the construction industry. However, according to the California Center on Policy Initiatives, official co mplaints are rare and in a majority of cases are filed only in the case of the most egregious of wage theft viol ations: no payment for all time worked.
Workers less often complain of other, more frequent violations su ch as employers failing to pay overtime rates or requiring work during rest and meal breaks. Wo rkers seldom claim lost wages while still on the job, and many report enduring vi olations for months or years before coming forward. The most common obstacles to filing wa ge claims are fear of retaliation and lack of information. Pursuing wage theft claims is an often confusing and frustrating process, and usually takes longer than the legal time limit, which is particularly difficult for low-paid workers. According to a study conducted by the University of Califo rnia, Berkeley Labor Center, 39% of families of construction workers are enrolled in one or more safety net prog rams with a cost of almost Contractor/Subcontractor Transparency Ordinance ● Page 2
$28 billion per year. Three time s as many construction workers lack health insurance compared to all workers.
Even more significant than the issue of misclassifica tion in construction is the practice of paying workers completely off the books. A 2019 report conducted by the Alliance for Construction Excellence found that there are fully four times as many cons truction workers being paid off the books as the number being misclassified as independent contractors (1.2 million to 300,000). The cash-only nature of under-the-table work leaves workers particularly vulnerable to wage theft, though misclassified workers and even legally employed workers can be subject to this as well. A study of construction workers in California found that workers pai d under the table earn just 52 cents for every dollar earned by workers with employee status.
DISCUSSION:
The City of Riverside can take a more active ro le in combating wage theft and upholding labor standards in Riverside by updating our verifi cation requirements for contractors and subcontractors of large projec ts in the city and keeping record of all contractors and subcontractors throughout the durati on of the project. Currently, t he City of Riverside requires applicants submit a contractor verification form (attached) that requires subcontractors to be validated through the Business Tax Division prior to final approvals and certificate of occupancy.
While a meaningful first step, this policy can be strengthened to better identify potential bad actors and ensure a transparent process through updating th e time of reporting, identifying a reporting threshold, requiring reporting of past labor viol ations, codifying requirements for incomplete reporting and violations for not reporting information.
Time of reporting: The City’s process currently requires subcontractor information to be reported before issuing a certificate of occupancy. Other cities, including Irvine, Santa Ana and San Diego, have adopted similar policies and r equire that reporting is submi tted and validated prior to the issuance of work permits.
Reporting Threshold: Other cities that have adopted similar policies utilize a reporting threshold to ensure that smaller projects can be exem pted. This proposed ordinance would apply to residential and mixed-use developments consisting of or involving 20 or more dwelling units, including single dwelling unit subdivisions and commercial or industrial development that proposes 20,000 square feet or more of tenant improvements or 20,000 square feet of additional gross floor area.
Reporting of Past Labor Violations: This proposed ordinance would expand reporting to include whether the contractor or subcontractor has any pending and/or prior enforcement actions for any state or federal labor violatio ns or paid any penalties to a government agency related to the provisions of the California Labor Code.
Requirements for incomplete reporting: This proposed ordinance can clarify what happens when incomplete reporting is s ubmitted. The proposed ordinance would give contractors two business days to fill in incomplete information after the awarding of each permit.
Other Agencies
Research identified other agencies that have adopted similar ordi nances including Irvine, Santa Ana, and the City and the County of San Diego (attached).
Contractor/Subcontractor Transparency Ordinance ● Page 3
The following matrix summarizes and compares the Irvine and City of San Diego ordinances:
SUMMARY MUNICIPAL CODE TEXT
REPORTING THRESHOLD:
Irvine is based on a dollar amount.
San Diego is based on a unit and square
footage count.
IRVINE:
For projects over $8 million in value
SAN DIEGO:
A. Residential and mixed-use development
consisting of or involving 20 or more dwelling
units, including single dwelling unit subdivisions.
B. Commercial or industrial development that
proposes 20,000 square feet or more of tenant
improvements or 20,000 square feet of additional
gross floo
r area.
LABOR VIOLATION REPORTING
REQUIREMENTS:
Irvine requires reporting for violations
within the prior 7 years and settlements
over $500,000.
San Diego has no minimum reporting
requirement. Any labor violation big or
small is reported.
IRVINE:
Shows verification whether each subcontractor, or its
principals, has any final adverse determinations for
state or federal labor violations within the prior 7
years, or paid any penalties to a state or federal
governing agency for the enforcement of settlement
actions over $500,000 within the prior 7 years.
SAN DIEGO:
Prior to permit issuance, the applicant shall submit the following: Whether the contractor or subcontractor has
any pending and/or prior enforcement actions for any
state or federal labor violations or paid any penalties to a government agency related to the provisions of the
California Labor Code.
REQUIREMENTS FOR INCOMPLETE
REPORTING:
Irvine allows applicants two business
days to report list of all subcontractors
after awarding each permit.
San Diego does not allow contractor to
undertake any further construction without
information being provided to the City first,
even if permit has been issued.
IRVINE:
In the event that the applicant cannot provide a
complete list of valid subcontractors at the time of
permit issuance or later at the time of adding or
replacing a subcontractor, the applicant shall provide
such information in each circumstance to the City
within two business days after award of each permit,
and/or after adding or replacing
a subcontractor.
SAN DIEGO:
If the applicant is unable to provide the
information in
Section 129.0121(c)(1)(A)-(B) prior to permit issuance, or in the event the permit holder adds or changes
contractors or subcontractors following permit
issuance, the permit holder shall provide the
information required in Section 129.0121(c)(1)(A)-(B)
prior to the new contractor or subcontractor starting
work. (3) In the event that any of the information
required in Section 129.0121(c)(1)(A)-(B) changes for
any of the contractors or subcontractors, the permit
holder shall provide updated information prior to the
contractor or subcontractor undertaking any further
construction related to the permit.
Contractor/Subcontractor Transparency Ordinance ● Page 4
VIOLATIONS FOR NOT REPORTING INFO:
Irvine can issue a right to stop work
and/or assess penalty for failure to
provide complete list of subcontractors.
San Diego states that work done without
satisfying the disclosure requirements is
deemed work performed without permit
and has three remedies. 1. Stop Work
Order 2. Revocation of Permit 3.
Misdemeanor.
IRVINE:
Failure to provide a complete list of subcontractors
prior to commencing work on the project, or failure to
provide subcontractor information after adding or
replacing a subcontractor within two business days
when either the delay was not reasonable, the delay
was intentional, or if the City has made an additional
request for this information which was not complied
with within two business days, shall result in the City having the right to stop work on the project, and/or
assess the applicant a penalty for default in an
amount determined by the City as necessary for each
subcontractor violation to defray City costs of
enforcement of this section.
SAN DIEGO:
Any work performed without satisfying the
requirements of this Section shall be deemed
performed without the required permit, pursuant to
Section 121.0302.
1. A first-time violation of this Section shall be
subject to the remedies in Section 121.0309,
there the permit holder may be issued a Stop
Work Order
2. A second-time violation of this Section shall be
subject to the remedies in Section 121.0313,
where the City Manager may issue a notice of
intent to revoke a permit.
3. Any additional violation shall be subject to the
remedies in Section 121.0311.
a. Violations of the Land Development
Code shall be treated as strict liability
offenses regardless of intent. Violations
of the Land Development Code may be
prosecuted as misdemeanors subject to
the fines and custody as provided in
Municipal Code Section 12.0201. The
City Manager or designated Code
Enforcement Official may also seek
criminal or civil injunctive relief and civil
penalties in the Superior Court pursuant
to Municipal Code Section 12.0202 or
pursue any administrative remedy
provided in Municipal Code Chapter 1,
including administrative abatement,
revocation of permits, recordation of
notice of violation, and withholding of
issuance of City permits
FISCAL IMPACT:
There is no fiscal impact associated with this report. If the Ordinance is approved, City departments are prepared to absorb the impact of the Ordinance on business processes within existing staffing levels and budgeted appropriations.
Contractor/Subcontractor Transparency Ordinance ● Page 5
Prepared by: Caleb Ragan, Office of Councilmember Ronaldo Fierro
Concurs with;
Ronaldo Fierro, Chair
Economic Development, Placemaking, and Branding/Marketing Committee
Attachments:
1. Ordinance
2. Current Contractor Verification Form
3. Irvine Ordinance
4. City of San Diego Ordinance
5. City of Santa Ana Ordinance
6. County of San Diego Ordinance
7. Presentation