At a time when employers are increasingly relying on temporary workers from staffing agencies and other labor contractors and many workers are looking for creative and more flexible alternative working relationships, California has taken a giant step backwards. Rather than encouraging work force creativity, California has passed a sweeping new law that will increase liability for employers who use such alternative staffing.
California’s AB1897, signed by Governor Brown on September 28, 2014, adds Section 2810.3 to the California Labor Code. The new law became effective on January 1, 2015.
Labor Code Section 2810.3 contains three new requirements:
There are some significant exceptions to this law, which will provide some relief to a number of employers. These exceptions are as follows:
The new law clearly applies to temporary employees provided by a third-party temporary staffing agency. It also applies to other workers whose job assignments may not be temporary but are provided by a third party. However, the new law does not impose liability on a business that uses an independent contractor “other than” a labor contractor, nor does it change the definition of an independent contractor. The definition of “labor contractor” explains that the law only applies to workers who perform labor “within the client employer’s usual course of business,” as in a typical temporary worker or staffing agency arrangement, but the independent contractor exception appears to apply to workers who are solely employed by and working for a bona fide independent contractor. For example, if an accounting firm contracts with an IT services company to provide workers to resolve IT problems, the IT services company would not be a “labor contractor” within the statute, since the accounting firm is not in the business of providing IT services. However, the language is confusing and litigation may follow.
To some extent. The law allows an employer and labor contractor to enter into a contract that provides lawful remedies for liability created by the acts of the other. Labor Code Sections 2810.3(g) and (h). However, the law also expressly provides that a waiver of the law is contrary to public policy and is void and unenforceable. Labor Code Section 2810.3(m). The most logical harmonizing of these different provisions would appear to allow a contractual provision for indemnity and/or defense. Contractual provisions that allow for some sort of damages at a reasonable level appear to also be permissible. However, such provisions might be claimed to be a de facto unlawful waiver if written too broadly. Additionally, under the new law, client employers cannot shift any legal duties or liabilities under workplace safety laws to the labor contractor.
While Cal/OSHA does not allow an employer to delegate legal duties, it has been possible and often sensible to delegate some Cal/OSHA responsibilities (and thus sometimes liabilities) under Cal/OSHA to another party. This new law might be interpreted as limiting or preventing employers from now doing so with regard to any work performed by non-exempt employees within the usual course of the employer’s business.
This would mean, as a practical matter, that for all such work the client employer must provide the following:
However, the better interpretation would appear to be that it is still possible for a client employer to outsource these tasks to a labor contractor, but that the client employer will remain liable if they are not performed properly. And it appears that the law allows delegation of duties and liabilities to a third party other than the labor contractor who supplies the workers in question.
In any event, it seems a virtual certainty that the new law will result in more citations being issued to client employers.
Client employers will now be subject to all civil liability and legal responsibility if the labor contractor violates wage-and-hour laws, Cal/OSHA violations or fails to provide workers compensation coverage, even if no evidence is presented that the client entity controlled the working conditions or wages, or had knowledge that any violations were actually occurring. Prior to the passage of the law, the burden was on the employee to prove that a client employer was a joint employer. And, a violation of AB1897 may also result in a representative action under the Labor Code Private Attorney General Act (PAGA). Labor Code Section 2699 et seq.
It is thus prudent to assume that this law will both discourage the use of labor contractors and give rise to litigation between employers and labor contractors in the event an employee files a claim against one or the other or both.
The impact on workers compensation premiums remains to be seen. However, it is prudent to assume that workers compensation providers will now seek additional information from employers with regard to any workers provided by labor contractors and that they will factor that new information in setting premiums. It is also possible that employers may see more restrictive language with regard to coverage under workers compensation policies.
Client employers and labor contractors now need to review all of their contractual relationships and contract language in California.
As a first step, it will be important to determine whether or not the work in question is covered or whether it fits within one of the exceptions. If the work is covered, it would be prudent to cover in contract language the following:
Client employers may also want to consider whether it is possible for the workers in question to be provided by an exempt labor contractor. Client employers may also want to review whether work currently done by third-party provided temporary workers should now be brought entirely in-house or whether the work should be outsourced to independent contractors.
Labor contractors who have not yet done so may now be more likely to establish independent contractor and/or workforce management divisions. Labor contractors will also need to take steps to reassure client employers of their compliance with wage and hour laws, workers compensation and Cal/OSHA requirements. For covered work, it will be important for employers to review their safety and health programs to ensure that newly covered workers are fully covered by those programs.
Finally, both client employers and labor contractors will need to ensure that they are keeping records demonstrating compliance with all applicable state laws.
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