California Governor Jerry Brown recently signed AB 1897 thereby creating new liability for businesses that engage in labor contracting. Current California law prohibits employers from entering into labor or services contracts with a construction, farm labor, garment, janitorial, security guard, or warehouse contractor, if the employer knows or should know that the agreement does not include sufficient funds for the contractor to comply with laws or regulations governing the labor or services to be provided. AB 1897, which goes into effect January 1, 2015, greatly expands this law by requiring all “client employers” to share with “labor contractors” all civil legal responsibility and civil liability for all workers supplied by that labor contractor for the payment of wages and the failure to secure valid workers’ compensation coverage.
AB 1897 defines “client employers” as any business entity “that obtains or is provided workers to perform labor within its usual course of business from a labor contractor” and “labor contractors” as any individual or entity “that supplies, either with or without a contract, a client employer with workers to perform labor within the client employer’s usual course of business.” While there are limited exceptions, the practical effect of these broadly defined terms is to impose joint liability on employers for the employment violations of their subcontractors and staffing agencies. All is not lost, however. The new law does not prohibit employers from agreeing to any otherwise lawful remedies against labor contractors for indemnification from liability created by acts of the labor contractor. Second, the law only applies to employers who are provided with workers to perform labor “within the client employer’s usual course of business.” As such, independent contractors are excepted so long as a bona fide independent contractor relationship exists.
This new law confirms that California businesses must continue to do everything in their power to ensure that their subcontractors and staffing agencies are complying with all aspects of California’s wage and hour laws. In addition, employers must ensure that any contracts with such parties contain valid indemnification provisions. It is only by taking these and other steps that employers can protect their businesses from any loss or harm (including attorneys’ fees) arising from claims by the subcontractor’s or staffing agencies’ employees.