Starting January 1, 2015, a new law will go into effect in California that will significantly change the legal relationship between temporary staffing agencies and the companies that contract with them to use temporary workers. The new law, Assembly Bill 1897, also known as the “Temp Worker Protection Bill,” will make California companies jointly liable with staffing agencies for violations of wage, safety and workers' compensation laws.

To Whom Does The Law Apply?

The law applies to any “client employer.” A client employer is defined as a business entity with 25 or more employees that obtains or is provided at least six workers to perform labor within the usual course of business from one labor contractor or various labor contractors.

Who Is Not A Client Employer?

The following business entities are excluded from the definition of “client employer” or from the liability imposed under the provisions of this bill:

• Business entity with fewer than 25 employees;
• Business entity that has five or fewer employees from a labor contractor or various labor contractors at any given time;
• Motor carrier of property that contracts with or engages another motor carrier of property to provide transportation services;
• Employer that utilizes a third-party motor carrier of property with interstate or intrastate operating authority to ship or receive freight;
• Cable operators, telephone corporations and direct-to-home satellite providers that contract with a company to build, install, maintain or perform repair work as long as the name of the contractor is visible on employee uniforms and vehicles;
• Motor club that contracts with third parties to provide motor club services if the name of the contractor is visible on the contractor’s vehicles; or
• The state or any political subdivision of the state.

Who Is Not A Labor Contractor?

The following entities are specifically excluded from the definition of “labor contractor” and, therefore, the provisions of the bill will not be triggered if they are the ones providing the labor to the client employer:

• A bona fide non-profit community-based organization that provides services to workers;
• A bona fide labor organization or apprenticeship program or hiring hall operated pursuant to a collective bargaining agreement;
• A motion picture payroll services company; or
• A third party who is a party to an employee leasing arrangement, if the employee leasing arrangement contractually obligates the client employer to assume all civil legal responsibility and civil liability under the law.

A worker does not include an employee who is properly classified as exempt from the payment of overtime pursuant to the administrative, executive or professional exemption in the Industrial Welfare Commission Wage Orders; therefore, if the contract is for employees who fall within any of these exemptions, the provisions of the law will not apply.

What Does The Law Do?

The new law imposes all civil legal responsibility and liability on the client employer for any wage-and-hour violations committed by the labor contractor for the labor contractor’s employees it supplied pursuant to the contract with the client employer. Additionally, it imposes civil liability and legal responsibility on the client employer for the labor contractor’s failure to secure valid workers’ compensation coverage for the labor contractor’s employees working pursuant to the contract with the client employer. Basically, if the labor contractor fails to pay its employees properly or fails to provider workers’ compensation coverage for those employees, the client employer will be legally responsible. However, a client employer can contract for indemnification from the labor contractor for the labor contractor’s failure to pay wages or secure workers’ compensation coverage. There is, however, one exception: client employers cannot shift any legal duties or liabilities under workplace safety laws to the labor contractor.

How Does The Law Work?

An employee, who believes he/she has not been properly paid or has suffered an injury and there is no workers’ compensation policy, may pursue an administrative claim or civil action against the client employer, labor contractor or both. If the employee pursues a civil action, the employee or representative must provide notice to the client employer of the alleged violation(s) 30 days before filing the civil action. A civil action is not just limited to a single-plaintiff action, but can include a class action or representative action under Labor Code Section 2699 et. seq.

If the employee pursues an administrative claim, no prior notice to the client employer is required. To prevail in an administrative or civil action against the client employer for the labor contractor’s alleged violations, the employee will need to prove:

• That he/she was not properly compensated or provided with workers’ compensation coverage;
• That these violations occurred while the employee was working pursuant to a contract for labor between the client employer and labor contractor; and
• The contract was for work within the “usual course of business” of the client employer, meaning the work was regular and customary for the client employer and performed within or upon the premises of the worksite of the client employer.

Best Practices

To avoid liability under the new law, employers should consider the following tips:

• Review all existing contracts for labor or services to determine what contracts may fall within the scope of “usual course of business.” For those contracts that qualify, contact those contractors to obtain assurances of their labor and employment compliance.
• Consider including legal protections for wage-and-hour violations and workers’ compensation coverage, including duty to defend and/or indemnification provisions, in new and existing contracts.

For more information, please contact your Kutak Rock attorney or the author of this client alert.