Effective January 1, 2015, California will impose apply joint liability on labor contractors and their business clients who fail to pay adequate wages or fail to provide workers’ compensation coverage (AB 1897). This new law will be codified as Section 2810.3 of the California Labor Code.
As a practical matter, the new statute will require labor contractors and their business clients to provide workers’ compensation coverage if the work being provided is “within the usual course” of the client’s business and is performed at the clients’ work site. Of course, the business owner typically relies upon the contractor to provide the applicable coverage; however, if the contractor fails to do so, the business owner may be held jointly liable by statute.
In addition to the workers’ compensation considerations, the business owner must also consider the labor contractor’s compensation structure. If, for example, the labor contractor misclassifies employees as independent contractors, the labor contractor and its client (the business owner) may be held jointly liable for any overtime and minimum wage violations that result from the misclassification. An employee will have the ability to sue its direct employer (the labor contractor) and the business owner who hired the labor contractor if a violation occurs.
Although business owners may not contract around these new provisions, AB 1897 does allow a labor contractor to indemnify its business clients. Thus, businesses should ensure they are contracting with reputable companies and should be sure to include indemnity provisions in their vendor agreements.
Luckily, AB 1897 does not apply to home-based businesses, businesses with fewer than twenty-five workers (including those workers supplied by the labor contractor), and businesses that use less than five workers supplied by a labor contractor at any one time. Where possible, businesses should attempt to qualify for the provided exemptions and avoid the possibility of joint liability under this new statute.
If you own or operate a business and have questions regarding the application of AB 1897 to your workforce, give the experienced business attorneys at The Loftin Firm a call today.