Employers in California will have added obligations in paying their temporary services employees when Senate Bill 940 takes effect on January 1, 2009. SB 940, which was passed by the legislature and signed by the governor in July, requires temporary services employers to pay their employees' wages on a weekly basis or, if the temporary services worker is assigned to work "day-to-day", at the end of each day.

SB 940 was passed in response to the California Supreme Court's decision in Smith v. L'Oréal, which created uncertainty about whether an employer was obligated to immediately pay wages to temporary employees at the end of the temporary assignment or project. That class action litigation was based on allegations by hair models who worked for L'Oréal for one day, but were not paid their wages that day, that L'Oréal had violated the California Labor Code. The California Supreme Court held that Labor Code section 201, requiring an employer who "discharges" an employee to pay that employee all earned and unpaid wages at the time of discharge, equally applied to both permanent and temporary employees such that L'Oréal had an obligation to pay its hair models their wages at the time of termination.

The decision in Smith v. L'Oréal created obvious logistical concerns for temporary services employers. SB 940 clarifies the way in which temporary services employees must be paid.

SB 940 applies to "temporary services employers," defined as an employer that contracts with customers or clients to supply workers to perform services and does all of the following: (a) negotiates with clients and customers regarding various items including the type of work to be performed, the working conditions, and the quality and price of the services; (b) makes decisions regarding the assignments or reassignments of workers, even if the worker has a right to refuse specific assignments; (c) is authorized to assign or reassign a worker to another client or customer when a specific client or customer finds the worker unacceptable; (d) assigns or reassigns workers to perform services for customers or clients; (e) sets the rate of pay for workers; (f) pays workers directly through its own account; and (g) retains the right to hire and terminate workers. Notably, "temporary services employer" does not include (a) a bona fide nonprofit organization that provides temporary workers to clients, (b) a farm labor contractor or (c) a garment manufacturing employer.

SB 940 requires temporary services employers to pay each employee who is assigned to work for a client that employee's wages on a weekly basis. It further requires temporary services employers to pay each employee wages for work performed during any calendar week not later than the regular payday of the following calendar week.

For those employees of a temporary services employer who are assigned to work for a client on a day-to-day basis, or who are assigned to work for a client whose employees are on strike, the employee's wages are due and payable at the end of each day. To qualify as an employee assigned on a "day-to-day basis" under the statute, each of the following conditions must be met: (a) the employee reports to the temporary services employer's office; (b) the employee is dispatched to the client's offices and reports back to the temporary services employer's office at the end of each day; and (c) the employee's work is not executive, administrative or professional.

SB 940 clarifies that if an employee of a temporary services employer is assigned to a client and either is discharged by the employer or voluntarily quits employment, wages are due and payable as provided by Labor Code sections 201 and 202, respectively. Pursuant to those sections, employees who are terminated must be paid immediately upon termination, and employees who quit without providing notice must be paid within 72 hours.

Notably, SB 940 does not apply to employees of a temporary services employer who are assigned to work for a client for more than 90 consecutive calendar days. Such employees may be paid twice per month pursuant to the California Labor Code. Employers should be aware, however, that if such employees are paid weekly, the entirety of SB 940 will apply to those employees.

Employers who violate SB 940 will be liable under Labor Code section 203 for penalties, as well as other damages available by law. Not only do temporary services employers need to be cognizant of the change in the law, but also those employers who use temporary agencies for staffing purposes. In California it is not uncommon for employees to assert a "joint employer" claim against both the temporary services employer and the client to whom the employee was assigned.

The text of SB 940 can be found on the Official California Legislative Information website.