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Companies Will Be Responsible For Wages of Sub-Contractors

Does your company use workers provided by other companies?  If so, your company may be liable for the other companies’ failure to pay wages or carry state-mandated workers’ compensation insurance.

Governor Brown signed AB 1897, which adds Labor Code section 2810.3 effective January 1, 2015.  This new law requires a “client employer” to share with a “labor contractor” all civil legal responsibility and civil liability for all workers supplied by that labor contractor for the payment of wages and the failure to obtain valid workers’ compensation coverage.  In other words, if your company receives workers through a contracting agency, and that agency fails to pay the worker or fails to maintain valid workers’ compensation coverage, your company could be responsible for any unpaid wages or workers’ compensation claims.

A “client employer” is a “business entity that obtains or is provided workers to perform labor within the usual course of business from a labor contractor.” A “client employer” does not include any of the following:

(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.

(iii) The state or any political subdivision of the state, including any city, county, city and county, or special district.

A “labor contractor” is an “individual or entity that supplies workers, either with or without a contract, to a client employer to perform labor within the client employer’s usual course of business.”

A “labor contractor” does not include specified nonprofit, labor, and motion picture payroll services organizations and certain 3rd parties engaged in an employee leasing arrangements.

A “worker” does not include an employee who is exempt from the payment of an overtime rate of compensation for executive, administrative, and professional employees pursuant to wage orders by the Industrial Welfare Commission described in Section 515.

The law does not prevent client employers and labor contractors from “mutually contracting for otherwise lawful remedies for violations of its provisions by the other party.”  In other words, the client employer can require the labor contractor to defend and indemnify the client employer in the event a worker sues the client employer, but the client employer can still be sued directly.  Labor contractors, client employers and workers may not waive any of the protections provided by Labor Code section 2810.3.

There is no “opportunity to cure” provision, but a worker or his or her representative must notify the client employer of violations at least 30 days prior to filing a civil action against a client employer for violations covered by this section.  Neither the client employer nor the labor contractor may take any adverse action against any worker for providing notification of violations or filing a claim or civil action.

The new law does not impose liability on a client employer for the use of an independent contractor other than a labor contractor or change the definition of independent contractor.

The new law does not impose individual liability on a homeowner for labor or services received at the home or the owner of a home-based business for labor or services received at the home.

If you use or supply sub-contractors, you will want to review and possibly revise your client and/or vendor agreements before the new year.

The Law Office of Phillip J. Griego
95 South Market Street, Suite 520
San Jose, CA 95113
Tel. 408-293-6341
Original article by Robert E. Nuddleman, former associate of The Law Office of Phillip J. Griego.
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