(Illustration) ProfileBy Laura Maechtlen and Dana Howells

As of January 1, 2015, new California Labor Code section 2810.3 requires a “client employer” to share civil liability with “labor contractors” (aka payrolling, temporary staffing, or employee leasing agencies) for (1) payment of wages of the contract employees, and (2) failure to procure worker’s compensation coverage. Client employers will also have non-delegable responsibilities for worksite occupational health and safety.

What Does The New Law Provide?

  • No Shifting Of Liability, But Indemnity Allowed. Although a client employer cannot shift away all liability to a labor contractor for either wage payments or workers’ compensation, client employers may seek contractual indemnity against a labor contractor for liability that the labor contractor creates.
  • Workplace Safety Compliance Cannot Be Shifted. Client employers cannot contractually make the labor contractor solely responsible for workplace safety compliance.
  • 30-Day Notice Requirement Before Filing Civil Action. A worker or his or her representative must notify the client employer of specified violations at least 30 days before suing the client employer. Because of this notice provision, client employers may want to include language in contracts requiring a process in which the labor contractor must attempt to remedy any violation, before a civil action is filed, within the notification period. Client employers should also consider language that allows the client employer to step in and remedy during the notice period, while reserving its right to be reimbursed by the labor contractor.
  • No Retaliation. Neither the client employer nor the labor contractor can take action against a worker for providing the 30-day notice or for filing a claim or civil action.
  • Records Inspection. While the client employer’s records are subject to inspection by state enforcement agencies, the law also expressly “does not require the disclosure of information that is not otherwise required to be disclosed by employers upon request by a state enforcement agency or department.”
  • Exempt Employees Not Covered. The statute excludes from the definition of contracted “workers” those exempt under California’s executive, administrative, or professional exemptions (see Labor Code Section 515).

What Can Client Employers Do To Minimize Liability Under This New Law?

To try to protect against potential liability under the new law, client employers can:

  • Review workers’ compensation insurance arrangements for contract labor and consider additional steps to ensure coverage is in place (e.g., policy endorsements, additional insureds);
  • Review and upgrade workplace safety compliance and training with respect to contract labor;
  • Review and update employee leasing contracts, possibly dividing compliance responsibilities more expressly between the client employer and the labor contractor and adding the client employer’s ability to do compliance audits, while ensuring that the client employer does not exert too much “control” over the workers, which can lead to additional liability as a joint employer under California law;
  • Ensure that staffing firms from whom they source employees are solvent, reputable, and have first-rate compliance programs.

This new law has various shades of gray. The Labor Commissioner, Division of Occupational Safety and Health, and the Employment Development Department may adopt regulations and rules of practice and procedure necessary to administer and enforce the provisions of the new Labor Code Section. Thus, there may be additional standards coming.

In addition, the terms “labor contractor” and “usual course of business” may lead to disputes over what services the statute covers. Finally, note that “wages” is defined expansively, by reference to Labor Code 200, to include incentive compensation, bonuses, or vacations having nothing to do with the assignment for which the client employer engaged services in the first place.

Both client employers and labor contractors are encouraged to contact a member of Seyfarth Shaw’s Workplace Counseling Group to discuss this new law and its impact on how they do business.

Edited by Jonathan Brophy