• Under AB 1897, effective Jan. 1, 2015, employers may be held civilly liable for a labor contractor’s labor law violations.
• The new law allows for shared liability without a determination of joint employment.
• AB 1897 applies to employers that hire more than five temporary workers for core business activities and have 25 or more employees.
• Employers may shield themselves from liability through indemnification provisions.
On Sept. 28, 2014, California Governor Jerry Brown signed into law Assembly Bill 1897 (AB 1897). AB 1897 establishes shared liability between employers and labor contractors for certain state labor law violations. Effective Jan. 1, 2015, employers may be held civilly liable for a labor contractor’s failure to comply with California’s wage and workers’ compensation laws. Additionally, AB 1897 prohibits employers from shifting worker safety obligations onto labor contractors.
The newly enacted law applies to California employers that:
• Have 25 or more employees;
• Hire more than five temporary workers from a labor contractor; and
• Use hired temporary workers to perform labor within the usual course of business.
AB 1897 defines “usual course of business” as the regular and customary work of a business, performed within or upon the premises or worksite of the employer.
AB 1897 does not apply to employers with a workforce of fewer than 25 employees or employers that use five or fewer temporary workers supplied by labor contractors.
Affected Labor Contractors Under AB 1897, labor contractors are individuals or entities that supply employers with workers to perform labor within the employer’s usual course of business, with or without a contract. However, limited exceptions exist for specified nonprofits, labor organizations, apprenticeship programs, motion picture payroll service companies and certain third parties engaged in employee leasing agreements.
Prior to the passage of AB 1897, an employer could be held liable for a labor contractor’s violation of California’s labor laws only in joint employment situations. Determining the existence of a joint employment situation may require inquiry into the entities’ rights to direct and control the manner and means by which they perform their work. This type of inquiry can require substantial effort.
AB 1897 allows for shared liability without a determination of joint employment. Under the law, shared liability may exist even for an employer that can show that it was unaware of existing labor violations.
Specifically, the law dictates that an employer may share in the liability of a labor contractor that fails to:
• Pay employee wages as required by California law;
• Secure valid or sufficient workers’ compensation coverage; or
• Comply with occupational health and safety regulations.
AB 1897 explicitly allows employers to include indemnification provisions in their contracts with labor contractors. Employers may establish, exercise and enforce by contract any otherwise lawful remedies against a labor contractor for liability created by actions of the labor contractor.
AB 1897 requires an employee to notify his or her employer of any labor law violation at least 30 days before filing a lawsuit against the employer.
The law prohibits employers and labor contractors from retaliating or taking any type of adverse action against an employee who reports a violation or initiates a civil lawsuit.
The California Department of Industrial Relations and the Economic Development Department will be responsible for the implementation and regulation of AB 1897. These agencies will also be responsible for enforcing compliance with the law.
Employers will be required to provide these agencies with access to any records and information the agencies may require in order to certify compliance with the law.
California employers should consider taking a proactive approach in response to the changes created by AB 1897. Specifically, employers utilizing temporary workers can no longer ignore whether their labor contractors are in compliance with California’s wage and hour, workers’ compensation, and health and safety laws.
Moreover, employers should also evaluate any existing agreement with labor contractors, and determine whether indemnification clauses need to be added or amended in these agreements.
For more information on AB 1897, please consult the full text of the law.