Does your company use workers provided by another entity, such as a staffing agency? If so, your company will soon have direct responsibility if the provider fails to properly pay wages or carry proper workers’ compensation insurance.

The Law

California Labor Code section 2810.3, effective January 1, 2015, provides that a “client employer” must share with a “labor contractor” all responsibility and civil liability for all workers supplied by that labor contractor regarding the payment of wages and any failure to secure proper workers’ compensation insurance. A worker must notify the “client employer” at least 30 days prior to filing suit for covered violations, but there is no “cure” opportunity.

Definitions

A “client employer” is a “business entity that obtains workers to perform labor within the usual course of business from a labor contractor.” It is not: 1) a business entity with a workforce of less than 25 workers, including workers provided by any labor contractor; 2) a business entity with five or fewer workers supplied by a labor contractor to the client employer at any given time; or 3) a state or any political subdivision of the state, including any city, county, city and county.

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.” It does not include: certain labor organizations and certain third parties performing employee leasing arrangements.

A “worker” does not include those exempt from overtime.

What to do?

Under this law, what the client employer knew or did is irrelevant, so preventive action is critical. Here are some suggestions:

  • Audit the contractor's records for compliance with wage and hour laws and workers' compensation insurance coverage. Include such requirements in your contract.
  • Require the contractor to prove that it has workers' compensation insurance and verify who's covered.
  • Use a contract with sound indemnification language. The contractor should acknowledge that it is solely responsible for compensating its employees correctly and providing their workers' compensation coverage, and that it will hold the client employer harmless if it fails to do so.
  • Require the contractor to purchase employment practices liability insurance and name the client employer as an additional insured.
  • Require the contractor to be bonded. 
  • Review and clean up existing agreements that do not offer adequate protection.