Since Governor Brown signed AB 1897 on September 28, 2014, many businesses are likely wondering whether the new law, California Labor Code § 2810.3, will increase their liability when they subcontract work. The answer depends on whether the work is within the company's usual course of business.
The new law requires a business to automatically share liability with a "labor contractor," such as a temporary staffing agency, if the agency fails to pay wages or provide workers' compensation insurance to its employees who are assigned to work at the business. Cal. Lab. Code § 2810.3(b). Before this legislation, temporary employees had the burden of proving that the businesses they were assigned to were "joint employers" with the staffing agencies.
However, the new law does not impose liability on a business for using an independent contractor "other than a labor contractor," nor does it change the definition of independent contractor. Labor Code § 2810.3(o). So what does that mean?
"Labor contractor" is defined as an individual or entity that supplies workers to perform labor "within the client employer's usual course of business." Subsection (a)(3). The phrase "usual course of business" is defined as "the regular and customary work of a business, performed within or upon the premises or worksite of the client employer." Subsection (a)(6).
For example, if a restaurant contracts with a plumbing company to send workers to fix a clogged pipe, the plumbing company would not be a "labor contractor" within the statute, since the restaurant is not in the business of providing plumbing services. The independent contractor exception would apply so long as a bona fide independent contractor relationship exists.
This new law is further reason for businesses to ensure that a bona fide independent contractor relationship exists with each of their contractors/vendors. Moreover, businesses should thoroughly vet their staffing agencies to ensure they are reputable and comply with California wage and hour laws. This blog's earlier advice is now even more sound: seek to have your staffing agency indemnify your business for any loss or harm (including attorneys' fees) arising from claims by the agency's employees. If a staffing agency refuses to sign such a provision, evaluate whether or not to enter into a contract with that agency, and/or to continue to use temporary employees.
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