Tunnels - March 2006

Labor Reduction: A Continuing Trend
in Tunnel Operations

By W. Herschel Kilgore

California has been viewed as a crystal ball for future labor considerations for all car wash operators. In California, car wash operators are experiencing new pressures to address several labor concerns.

BACKGROUND

As all California operators know, labor abuse has been exposed on local as well as national television. Some California operators have been exposed in their efforts to violate state labor laws including payment of minimum wage, providing rest or break periods, required lunch breaks and overtime compensation. Some car wash employees in California have not been covered by the required workman’s compensation insurance and several have not had their withheld social-security, federal, and state, income taxes remitted by their employers. A few California operators have had personnel working for “tips only” and have even had employees pay the operator for the privilege of working for tips. All of these are gross violations that have been exposed in very public ways by television reporters’ hidden cameras and newspaper reporters’ print accounts. The result of this abuse has attracted the attention of various groups including Bet Tzedek Legal Services, UCLA Labor Center, Legal Aid Foundation of Los Angeles, and other workers’ advocacy groups. It also attracted the attention of California Assembly member, Jackie Goldberg.

A.B. 1688

In 2004, Ms. Goldberg introduced California Assembly Bill 1688, which passed and was signed by the governor. The purpose of A.B. 1688 was to curb, if not eliminate, the labor violations mentioned previously. A.B. 1688 is probably the most onerous labor bill ever to have been signed into law in the United States. After several public hearings, regulations implementing this law went through several revisions before final implementation in December 2005.

EFFECT

If you are a car wash operator in California in 2006 — and you have personnel who engage in the wash process by vacuuming, prepping, brushing or mitting the car; towel drying; or performing any other function to wash, dry, or detail the vehicle — you are required to comply with A.B. 1688. What does “compliance” entail?

Registration
Operators must complete a registration with the state designed to disclose to the state the type of ownership of the car wash — corporation, sole proprietorship, LLC, partnership, or other. In this disclosure, any person or other entity with 10 percent or more ownership must be disclosed, including name, personal home address, personal social-security number, and home phone number. The same disclosure requirements apply to all management personnel. Why? The regulations allow the state to proceed against any of the entities mentioned in the event of a violation or judgment.

Supporting Documents
Also contained in this registration is the requirement to provide the following documents:

  1. Proof of a valid business license
  2. Valid workman’s compensation certificate
  3. Copy of fictitious business name registration
  4. Copy of the State employer identification number
  5. Copy of the Federal employer identification number
  6. Copy of your articles of incorporation
  7. Copy of your statement of information for domestic Stock Corporation
  8. Copy of your articles of organization for LLCs
  9. A registration fee
  10. A surety bond in an amount not less than $15,000. Further, you must submit IRS form 8821 authorizing the Internal Revenue Service to provide the state with your federal tax return information.

Purpose
The reason the State of California is gathering all this information is clear — they intend to enforce the labor laws of the state of California and ensure proper and lawfully required compensation to all car wash employees by reviewing tax returns and employer records and through interviews with employees. If violations are discovered, the state will pursue all owners and managers for redress and compensation. The information provided by the registration gives the state the tools to compare your labor records against your workman’s compensation reports and your federal tax returns. The odds are they will spot any discrepancies, and you will receive a visit from one or more state and federal agencies.

SURETY BOND

There is also the matter of the surety bond that the operator is required to post. The bond must be made payable to the “People of the State of California.” It is there for the benefit of any employee damaged by his or her employer’s failure to pay wages, interest on wages, or fringe benefits, or damaged by a
violation of Labor Code Section 351 (gratuities) or 353 (accurate record keeping of gratuities) or both. Now here’s the real kicker — you would assume that an employee who has a complaint or claim would be required to go to the state department of labor and, after a hearing and finding, be awarded compensation from the bond. Not so! The regulations provide the employee the right to “proceed against the employer’s surety bond by taking whatever action he or she deems appropriate to obtain the unpaid wages, interest on wages, fringe benefits, or gratuities from the bond.”

I believe the State of California made this provision knowing that the Division of Labor Standards Enforcement did not and would not have the manpower to effectively implement these regulations. By making this provision, the employee can retain any attorney and proceed against the bond. We are already aware of situations where attorneys are showing up at car washes and soliciting the employees. Offers are being extended to car wash employees to attend a seminar regarding their rights under California law and they are being offered dinner and drinks during the seminar. Clearly, I believe the State of California is depending on the independent attorney to become their enforcement mechanism.

MINIMUM WAGE

In addition to A.B. 1688, the state assembly will introduce an increase in the minimum wage this year, which the Governor has already agreed to. What is also anticipated is that there will be an effort to have the increase “indexed,” meaning tied to inflation. This will result in the minimum wage increasing annually without further legislation being required. This has already happened in other states at this time.

MODIFIED OPERATIONS

These are just two examples of pressures on car wash operators in California. How do they compensate?

Compliance
First, recognition of the problem is necessary. Operators who are guilty of willful labor violations must recognize they have brought these actions down upon their own heads along with the heads of those operators who have made every effort to comply with the labor regulations. The righteous will be punished along with the wicked in this case.

Second, actions must be taken to comply with the new regulations. Compliance will be a tricky task because an operator who has not been in compliance that comes into compliance risks submitting data that will subject him or her to audits not only from the state labor agencies, but also from the state and federal revenue agencies.

Labor Savings
With compliance comes additional labor cost for operators. Operational changes that result in labor savings must be undertaken. In California, this will include replacing the “hand wash” with machine wash. Also, changes in operational platforms from full-service to exterior-express-type operations will occur. The express wash capable of producing clean, dry, shiny vehicles without any labor is exempt from A.B. 1688 regulations. Yes, if you don’t prep, wash, dry or vacuum the vehicle, you are not required to comply with A.B.1688.

ENFORCEMENT

Many California operators mistakenly believe they can ignore these new regulations. Don’t make that mistake. While the state wants to ensure that all employees are compensated properly, the state also has a greed motive. They have crunched the numbers. They have realized the amount of money they are losing in employee and employer taxes — FICA, state income tax, unemployment taxes, and the others. They know it runs in the multi-millions of dollars. This is another move to have illegal aliens, who comprise a large segment of the car wash employee workforce, brought into the legitimate workforce in the state.

California may indeed be the crystal ball for the nation. I would be surprised if similar labor regulations are not widely introduced in many other states and at the federal level. Already, there have been moves to reduce the number of illegal aliens in the workforce. In December 2005, the House of Representatives passed a bill that requires the verification of all social-security numbers of employees by their employers. Those employers who fail to do so would be subject to a fine of $25,000 per occurrence. A similar bill was expected to be introduced in the Senate in February.

Many of us have read in the headlines — aggressive enforcement of employment tax evasion is ongoing. Labor law abuses are not worth the risk. Operators need to plan now for compliance and look at their operations to minimize the labor requirements needed to efficiently run their car washes.

W. Herschel Kilgore is director of sales and marketing for Inglewood, CA-based NS Wash Systems and can be reached via e-mail at herschel@nswash.com.

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