Employers are increasingly using sub-contractors, temporary staffing, leased employees and independent contractors to supplement or, sometimes, replace their regular workforce. This workforce is especially attractive in California where labor costs run high. Until now, using a “labor contractor” to supply California workers for a “client employer” usually protected such employers from liability for the payment of wages and failure to provide workers’ compensation coverage. A new law in California, however, changes the dynamic between these client employers and labor contractors.
Specifically, California enacted AB 1897 making a client employer jointly liable with the labor contractor for civil liabilities related to the following:
- the payment of wages,
- the failure to report or pay all required employer contributions, worker contributions, and personal income tax withholdings, and
- the failure to obtain valid workers’ compensation coverage.
Under the terms of the law, employers can include indemnification provisions in their service contracts with labor contractors enabling them to sue for the liabilities created by acts of the labor contractor. Labor contractors will also have the same opportunity to contract with employers for indemnification.
The law does not include businesses with a workforce of less than 25 workers (including those hired directly by the client employer and those provided by a labor contractor) or businesses with five or fewer workers supplied by a labor contractor at any given time. The new law is effective on January 1, 2015.