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October 6, 2014

Governor Brown Signs Legislation Imposing Joint Employer Liability Between Labor Contractors and Client Employers


Governor Jerry Brown recently signed several new employment laws, one of which specifically addresses the staffing industry and companies who use staffing agencies.  AB 1897, enacted on September 28, 2014, imposes joint liability on labor contractors and client employers for the failure to pay wages and maintain valid workers’ compensation insurance for workers.  In addition, labor contractors and client employers are responsible for providing state enforcement agencies information to verify compliance with applicable state laws when requested by such agencies.

AB 1897 defines “labor contractors” as any individual or entity that supplies a client employer with workers to perform the regular and customary work of a business, such as a staffing agency.  “Client employers” is defined as a business entity that obtains or is provided workers to perform the regular and customary work of a business.  However, the definition of client employers excludes the following:  (1) business entities with a workforce of less than 25 workers, including those hired directly by the business entity or supplied by a labor contractor; (2) business entities with five or fewer workers supplied by a labor contractor at any given time; and (3) state government entities.  Executive, administrative and professional employees who are exempt from the payment of overtime wages are excluded from the definition of “worker.”

Under the new law, workers must provide client employers at least 30 days’ notice of a violation before the filing of a civil action against client employers.  During this time, client employers will have a brief window of opportunity to resolve claims with their labor contractors before the initiation of a civil action.

AB 1897 also contains an anti-retaliation provision, which prohibits labor contractors and client employers from taking adverse employment action against a worker for providing notification of violations or filing a claim or civil action.

How does AB 1897 affect staffing agencies and their clients?

AB 1897 does not change the legal landscape for staffing agencies and their clients.  It merely codifies long-standing rulings by California courts, which impose joint and several liability on staffing agencies and their clients for the payment of wages and maintenance of workers’ compensation insurance.  Furthermore, AB 1897 supplements other theories of liability or requirements previously established by statute or case law.  Accordingly, even if AB 1897 does not apply to a particular worker or business entity, it is possible that joint and several liability may still exist between a staffing agency and its clients under current case law.
AB 1897 also expressly states that it does not prohibit client employers and labor contractors from enforcing contractual agreements concerning any lawful remedies for liability created by the acts of a client employer or labor contractor.  Therefore, staffing agencies and their clients may continue to negotiate and enforce indemnification provisions in their staffing agreements.

Implications for Clients of Staffing Agencies

For non-union companies doing business in California, the enactment of this legislation may be a factor in helping labor unions to campaign the alleged joint employers as a single bargaining unit.  For employers facing such issues, advice of counsel and staff training are recommended.

Careful attention to such factors is especially important in so far as the National Labor Relations Board, in highly publicized cases involving parent corporations and franchisees’ is pushing the envelope on issues of joint control elements on various kinds of enterprises. California courts also have been exploring expanding liability in holding company subsidiary relationships.

For example, in Castaneda v. The Ensign Group, Inc. (9/15/14) --- Cal.App.4th ---, John Castaneda sued The Ensign Group, Inc. (“Ensign”) in a class action lawsuit alleging wage and hour violations. Castaneda alleged that Ensign was the alter ego of the Cabrillo Rehabilitation and Care Center (“Cabrillo”), the nursing facility where he worked. The trial court granted summary judgment for Ensign, holding that Ensign was not Castaneda’s employer as a matter of law.  The Court of Appeal reversed, holding that where Ensign, a corporation with no employees, owned a corporation with employees, Cabrillo, and Ensign exercised some control over Cabrillo, triable issues of fact existed as to whether Ensign was the employer of Castaneda.

What To Do Now

The changing climate of legislation and litigation suggests staffing agencies and their clients bring a different level of expertise to play in evaluating risk. AALRR’s Labor and Employment Attorneys are available to assist.

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