Companies that rely on labor provided by third-party contractors may be held jointly liable for wages owed to the contractor’s workers under a new California law that goes into effect on January 1, 2015.  The legislation appears to target the construction, agricultural, and security guard industries, but applies more broadly to almost any business that contracts with another person or company to supply five or more workers on a regular basis. 

New Provision to Labor Code, Section 2810.3

AB 1897, recently signed into law by Gov. Jerry Brown, targets companies (referred to as “client employers” in the new statute) that use outside firms (called “labor contractors” in the statute) to provide them with workers.  The law adds a new provision to the California Labor Code, Section 2810.3, which states that a company using a third party to supply its workers “shall share … all civil legal responsibility and civil liability” for any unlawful failure to pay “wages” and for failure to secure workers’ compensation insurance for the third party’s workers. 

As an example, if a company’s third-party staffing agency violates California’s wage or workers’ compensation laws, the company itself may be liable under the new law.  In addition, both the company and staffing agency would be prohibited from taking any “adverse action” against a worker who complains of wage violations or who files a claim or civil action.  

Limits of Liability

Potential liability under Section 2810.3 is not unlimited.  It only applies to companies that use third parties as a source of workers in the “usual course of business” at their premises or worksites.  It does not apply to businesses with fewer than 25 workers, businesses that use five or fewer subcontracted workers, or to employees who are exempt from overtime under the administrative, executive and professional exemptions.  Certain motor carriers, telecom service technicians and employee-leasing arrangements are also excluded. 

Workers may only rely on Section 2810.3 to recover “wages”—such as overtime pay, commissions, bonuses, incentive pay and premium pay for missed meal and rest breaks—but not unreimbursed business expenses or statutory penalties.  On its face, the law does not alter common law vicarious liability or joint employer theories for tort or fair employment claims, nor does it expand the scope of potential liability for the use of bona fide independent contractors outside of the labor contractor context.

Impact of Section 2810.3

Section 2810.3 is a significant change in the law to companies that rely on workers provided by other entities or people to operate their businesses on a day-to-day basis.  Service recipients are likely to be joined in wage-and-hour lawsuits brought by their subcontractors’ workers and could be held jointly liable for their subcontractors’ alleged wage violations. 

To mitigate risks, companies should update the indemnity, insurance and termination provisions in their service agreements, and they should consider whether and how to verify their subcontractors’ compliance with labor laws.  For more information, contact experienced counsel with your questions on California Labor Code Section 2810.3 and this rapidly changing area of the law.

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