Calif.: Companies Liable for Employment Violations by Independent Labor Contractors


California Gov. Jerry Brown signed Assembly Bill 1897, which will go into effect on Jan. 1, 2015. This bill creates new Labor Code section 2810.3, which applies to most companies with 25 or more employees that obtain or are provided workers to perform work within their “usual course of business” from companies that provide workers. The new law makes such companies liable for:

  • Payment of wages to the contractor’s employees.
  • The contractor’s failure to secure valid workers’ compensation coverage.
  • Compliance with all occupational health and safety requirements.

This new statutory liability on the part of companies legally contracting for labor services is not, in any manner, related to any required finding of joint or co-employment or any control over the workers’ working conditions, manner of payment, scheduling, or working environment. Companies are liable under the new law even if they can show that they were unaware that any violations existed or were occurring.

The statute defines a company’s “usual course of business” to mean “the regular and customary work of a business, performed within or upon the premises or worksite of the client employer.” It also defines “workers” to exclude employees who are exempt from overtime as executive, administrative, or professional employees under California law.

There are a few exemptions from the definition of a covered “client employer.” These are companies with fewer than 25 workers; ones with five or fewer workers supplied by labor contractors at any given time; the state or any political subdivision of the state; homeowners (including home-based businesses) for labor or services received at their homes; and motor carriers of property providing transportation services. There are also limited exemptions from the definition of covered “labor contractors” that include non-profit, community-based organizations that provide services of workers; unions, hiring halls, or apprenticeship programs; motion picture payroll services companies; third parties subject to bona fide employee leasing arrangements; motor club services; and cable operators, satellite service provides, and telephone corporations.

The new law contains additional provisions related to its enforcement by the Labor Commissioner, the state Division of Occupational Safety and Health (Cal/OSHA), and the Employment Development Department, including the authority of each to adopt necessary regulations and rules for its administration and enforcement.

This bill was co-sponsored by the California Labor Federation, the International Brotherhood of Teamsters, and the United Food and Commercial Workers International Union and was supported by the Service Employees International Union and the California Rural Legal Assistance Foundation. The California Chamber of Commerce listed the bill on its list of 2014 “job killer” bills.

There can be no question that all companies utilizing the services of “labor contractors” as defined by this law will need to engage in significantly increased oversight of how their contractors comply with their legal requirements with respect to the contractors’ employees. How this required increased oversight will impact the courts and regulatory findings of joint and co-employment going forward remains to be seen. However, based on the current legal grounds for finding such, it clearly appears that maintaining true separation between your employees and your independent labor contractor’s employees will become even more difficult in the future.

Robert A. Jones is a shareholder in the San Francisco office of Ogletree Deakins. Republished with permission. © 2014 Ogletree Deakins. All rights reserved.    

To read this and other HR articles on, please click here

The SHRM Blog does not accept solicitation for guest posts.

Add new comment

Please enter the text you see in the image below: