Executive Summary:  Employers in California should be prepared to comply with the requirements of Assembly Bill No. 1897, which, as discussed in our prior alert, increases liability for most companies who use contract labor for their operations. The law is scheduled to take effect January 1, 2015.

Expansion of Liability

Previously, California law only extended limited liability in certain industries and upon a showing that the contracting company knew or should have known that the contract did not include sufficient funds for the labor contractor to comply with California or federal laws or regulations governing the labor or services provided.  Liability also could be extended if the contracting party implemented sufficient control over the workers to be considered a joint employer.  The new law, however, expands coverage to most industries, and imposes all civil legal responsibility and liability on the contracting company for any wage-and-hour violations committed by the labor contractor with respect to the workers supplied to the business.  The new law also makes contracting businesses responsible if the labor contractor fails to provide workers' compensation coverage.  Liability will be imposed regardless of whether the business had knowledge of the purported violations, or whether the business and labor contractor are joint employers. 

Some Companies/Industries Excluded from the New Law 

Despite the new law's broad reach, A.B. 1897 exempts from coverage businesses that employ fewer than 25 employees or retain five or fewer workers from a labor contractor.  The new law also exempts the following organizations and/or industries:

  • Motor carriers of properties or business that utilize a third-party motor carrier of property;
  • Cable/satellite operators and telephone corporations that contract with a company to perform building/installation/maintenance/repair work;
  • Motor clubs that contract with companies to provide motor club services;
  • State governments;
  • Non-profit community-based organizations;
  • Labor organizations;
  • Motion picture payroll services companies; and
  • A third-party who is a party to an employee leasing arrangement, if that arrangement contractually obligates the contracting party to assume all civil legal responsibility and civil liability under the law.

The provisions also do not apply to workers who are exempt from overtime pursuant to the administrative, executive or professional exemptions of the California wage and hour laws. Further, the new law does not prevent a contracting party from contracting for indemnification from the labor contractor for the labor contractor's failure to pay wages or secure workers' compensation coverage, nor does it prevent a contracting party from entering into independent contractor arrangements with a third-party.  However, the new law prevents contracting parties from shifting any workplace safety duties or liability to the labor contractor.

Based on A.B. 1897's sweeping extension of legal liability, clients who use staffing companies or contract labor may want to contact legal counsel to determine what efforts may be made to limit the exposure arising from a labor contractor's liability.  For example, clients should consider reviewing all existing labor/staffing contracts.  If necessary, clients should consider whether to include duty to defend and/or indemnification provisions in current and future contracts.  Due diligence on the labor contractor's policies and/or practices is also advised; however, clients should be aware that California law still permits liability to be extended under previous state standards, including under a joint employer theory of liability.