Employers Face Increased Liability for Labor Contractors in 2015

By Terence Greene of Simpson Delmore Greene LLP posted in Employment Law-Employer on Friday, December 12, 2014.

Employers that use labor contractors (such as staffing or temp agencies) will share with the contractors all civil legal responsibility and liability for their workers, starting January 1, 2015. This means that employers can be responsible for labor contractors' errors.

Employers that hire workers through contractors to perform "regular and customary work of a business," will now be liable if a labor contractor does not pay a worker all required wages or secure valid workers' compensation coverage. The new law also prohibits an employer from shifting to the labor contractor legal duties or liabilities under workplace safety provisions with respect to workers provided by the labor contractor.

The bill was signed into law by Governor Jerry Brown on September 28, 2014. Section 2810.3 will be added to the California Labor Code to reflect the new law and takes effect January 1, 2015.

Under the new law, employer liability will be imposed regardless of the employer's knowledge of an alleged violation by the labor contractor. Moreover, the statute specifically provides that the new law does not abrogate or supplement other theories of liability or requirement established by statute or common law.

While the statute provides that neither the employer nor the labor contractor can waive any provision that would be contrary to public policy, this does not prohibit the parties from "establishing, exercising, or enforcing by contract any otherwise lawful remedies" against the other. What this means is that an employer could require the contract with the labor contractor to indemnify the employer in the event the labor contractor does not pay sufficient wages to a worker.

There are several ways to protect your company from increased liability:

  • Selectively hire a labor contractor that complies with California wage and hour laws and secures the required workers' compensation insurance;
  • Conduct a regular audit of your labor contractor's practices to ensure continued compliance with wage and hour laws and maintenance of insurance;
  • Review your company's contract with a labor contractor to ensure the agreement contains an indemnification clause that provides that the contractor is solely liable for accurate payment of workers' wages and that the contractor will hold the employer harmless;
  • Where possible, monitor the financial viability of the labor contractor; and
  • Ensure your company's workplace complies with the requirements of the Division of Occupational Safety and Health.

For more information on protecting your business from increased liability with labor contractors, or if you would like your company's contract with a labor contractor reviewed, contact Terence L. Greene, at (619) 515-1194.

[1] "Labor contractor" excludes bona fide non-profits, bona fide labor organizations, apprenticeship programs, hiring halls operated pursuant to a collective bargaining agreement, and motion picture payroll services company.

"Client employers" excludes (i) a business entity with a workforce of less than 25 workers, including those hired directly by the client employer and those obtained from, or provided by, any labor contractor; (ii) a business entity with five or fewer workers supplied by a labor contractor or labor contractors to the client employer at any given time; and (iii) the state or any political subdivision of the state, including any city, county, city and county, or special district.