California warehousing operations will now be required to have written contracts with any third-party contractorswho supply personnel to warehouses and to provide copies of those contracts to the California Labor Commissioner upon request. California’s Labor Code provides that a person or business cannot hire a contractor providing construction, farming, garment, or janitorial laborers, or security guards, where the person hiring the contractor knows, or should know, that the contractor cannot fulfill all employment obligations toward its employees with the amount of money provided in the contract. This provision in the Labor Code allows the contractor’s employees to sue the person or business who hired the contractor and hold that person or business responsible for the contractor’s failure to pay wages or other related obligations. In other words, California law allows employees in certain trades to hold the businesses that hire their employers liable for unpaid wages.

AB1855, which has now been signed into law by Governor Brown, will extend the list of trades given this advantage to include warehouse workers. This means that warehouses that use outside contractors to staff their operations will need to ensure that the contract amount paid to the contractor will be sufficient to pay all employment obligations for the contractor’s employees, or else the warehouse could be held responsible by a contractor’s employees. The Labor Code has allowed businesses some protection by creating a “rebuttable presumption” that the business believed its contract was sufficient, if the contract is in writing and contains specific information required by statute. AB1855 now requires businesses to keep copies of those contracts for four years and to produce copies to the Labor Commissioner upon request. This requirement had been staunchly opposed by organizations like the International Warehouse Logistics Association (IWLA), the thirdparty warehousing and logistics trade association for the United States and Canada. AB1855 does state that any contracts submitted to the Labor Commissioner are exempted from California’s freedom of information law (the California Public Records Act). However, warehouses in California will now be faced with potential liability to workers who are not directly employed by them.

Last year’s decision in Castillo v. Toll Bros. (2011) 197 Cal. App.4th 1172, clarified that a contract’s monetary sufficiency is to be assessed using California’s minimum wage. The  Castillo decision also held that the law’s exception for businesses that enter into collective bargaining agreements with outside labor, is permitted under federal labor law. California businesses that use outside contractors to staff their operations should be careful to document their staffing agreements and should ensure that those agreements appear sufficient to avoid liability to their contractors’ employees.