Only a few places in the U.S. require a carwash owner to obtain a carwash bond when getting his or her license — most notably, California and New York City. As with all surety bonds, carwash surety bonds are intended to serve as a guarantee and protection for the obligees of the bonds— which are usually the public or the government.
Yet, despite their noble purpose, carwash bonds are controversial and are sometimes met with opposition in the industry (just recently, this situation happened in New York City when a carwash bond requirement was introduced). This blog post will discuss how a carwash bond works, how carwash owners can get bonded and why some in the industry have reacted negatively.
What’s a carwash bond?
All surety bonds are a form of protection to the bond’s obligees — from fraud, financial harm or other misconduct — and guarantee financial compensation if any of these scenarios should occur.
Carwash bonds are no different. While they are in the category of license and permit bonds (i.e., bonds that a business must obtain when getting its license), in many ways they function as “wage and welfare bonds.”
- License and permit bonds are bonds that businesses obtain when applying for their business licenses — in this case, a carwash license. They guarantee that businesses will perform in accordance with state regulations for their licenses. They also guarantee that businesses will perform in accordance with industry standards and practices.
- If they don’t, consumers who file a claim are usually compensated by the surety backing the bond. The surety is then indemnified by the business. In this way, surety bonds function as a line of credit, which needs to be repaid if a claim is made.
Wage and welfare bonds, on the other hand, are meant to guarantee that employers pay all earned wages, interests on wages and fringe benefits to employees. If the employer fails to do so, employees can receive compensation by filing a claim against the bond.
The cost of carwash bonds
All surety bonds have an amount and a cost. The amount of a surety bond is the amount of its coverage or its full penal sum. In both cases, California and New York City, that amount is $150,000 for carwash bonds.
The cost of a surety bond is how many principals need to pay in order to obtain a bond. That is also called a premium. The premium is determined on the basis of an applicant’s financials — mostly his or her credit score. Applicants with high credit scores are usually offered a relatively low surety bond premium rate — between one percent and four percent of the total bond amount.
Depending on the type of bond, applicants with lower credit scores may also be able to obtain a bond through a bad credit program. Most license and permit bonds are also available to applicants with credit scores that are less than perfect.
Carwash bonds in California and New York City
As of Jan. 1, 2014, a person applying for a carwash license in California is required to post a $150,000 California carwash bond in accordance with the provisions of Labor Code Section 2055(b). Detailed instructions about how to apply can be found here.
In June, New York City also instituted a licensing and carwash bond requirement for carwash businesses. The Intro. 125-B bill mandated that all such businesses across the city must be licensed and obtain $150,000 carwash bonds as part of the licensing process. The bill further includes meeting certain environmental standards as well as workplace safety requirements. The stated purpose of the bond is to secure financial coverage and protection for employees against wage and hour violations.
Reactions to the carwash bond
California and New York City received opposition from certain groups on the institution of the surety bond requirement. After the bond was put in place in California in 2014, the Western Carwash Association appealed to the California State Assembly as well as the state Senate to reduce the bond requirement. They argued that this new bond requirement was targeting the wrong people. Instead of filtering out those employers who broke labor laws, it was making it harder for smaller carwash owners to continue to operate.
The introduction of the surety bond requirement in New York City was opposed with similar arguments. Steve Rotlevi, president of the Association of Car Wash Owners, called the requirement an “extortion” during the mandatory presigning hearing. He also said that the bill presents carwash owners only with the choice to “unionize or go out of business.”
The association’s website offers further explanations on why the surety bond requirement is opposed. It concurs that this decision works against small businesses and even admits that this is deliberate to some extent. It offers other ways to work against the issue of violations and also states that it can offer programs on improving relations with workers.
Yet, there were also those that saw the introduction of the New York City surety bond requirement as a good thing. The Local Progress website called it a step in the right direction and a policy victory that would “help raise standards for workers, preventing wage theft, long shifts without breaks and unpaid overtime work.”
Are you for or against the carwash bond?
A number of voices are present in this matter, with some being supportive and others opposing. What do you think? Do you think a carwash bond is needed? Should it be introduced in others states as well? Or, conversely, should these bonds be removed because they are harmful to businesses?
We would be happy to hear what you think about carwash bonds. Leave a comment and let us know your opinion on the subject.
Todd Bryant is the president and founder of Bryant Surety Bonds. He is a surety bonds expert with years of experience in helping business owners get bonded and start their businesses.