United States: California Law Expands Scope Of Liability Of Employers That Use Labor Contractors

Executive Summary: California employers that hire temporary workers now share liability with staffing agencies for certain violations of the state's labor laws.  On September 28, 2014, California Governor Jerry Brown signed into law Assembly Bill 1897, a controversial bill that significantly expands the scope of liability of employers that contract with staffing agencies.  The full text of the bill is available on the California Legislature's website: http://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201320140AB1897.

The newly enacted bill, which will be codified at § 2810.3 of California's Labor Code, applies to employers that obtain workers to perform labor within the usual course of business from labor contractors.  Subject to some exceptions, labor contractors include staffing agencies and other entities that supply businesses with workers to perform labor.  The law does not apply to businesses with five or fewer temporary employees or fewer than 25 employees total, nor does it apply to professional employer organizations (PEOs). 

Under the law, an employer may now be held civilly liable for a labor contractor's failure to comply with California's laws concerning wages, workers' compensation coverage, and worker safety.  California already has numerous labor and employment regulations that impose higher standards than those set by federal law, including a recent wage law, which increased California's minimum wage to $10 an hour. 

The new law provides that the Labor Commissioner, the Employment Development Department, and the Division of Occupational Safety and Health may adopt regulations necessary to enforce the main provisions of the law.  The law empowers these agencies to demand access to records or other information from the employer or labor contractor to ensure compliance with applicable state laws. 

The bill provides that a worker seeking to file a civil action against an employer for violations of the law must notify the employer of the violations within 30 days.  The law further includes an anti-retaliation provision, which states that the employer and labor contractor cannot take any adverse action against any worker for filing a civil action or otherwise providing notice of a violation under the law. 

Prior to Assembly Bill 1897's enactment, California law already prohibited an employer from entering into a contract for labor or services with a construction, farm labor, garment, janitorial, security guard, or warehouse contractor, if the employer knew that the contract did not provide sufficient funds for the contractor to comply with applicable labor laws.  An employer could also be held liable for a labor contractor's violations of labor laws if the employer could be considered a "joint employer," which entails an inquiry into whether the entity has the right to direct and control the manner and means by which the work is performed.  Workers' rights organizations supporting Assembly Bill 1897 believed that the process of proving joint employer status was too costly, slow, and difficult.   

Bottom Line:  California employers covered under the new law should review their policies and practices to ensure compliance with California's labor laws as they apply to temporary workers.  Employers should exercise caution in selecting a labor contractor and evaluate the labor contractor's compliance with California's labor laws before using its services.  California employers may also decide to specify, in the labor contract, what remedies they have against the labor contractor for liability created by their acts.   

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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