Hunton Employment & Labor Perspectives

On September 28, California Governor Jerry Brown signed into law AB 1897, a bill that extends liability for workers supplied by “labor contractors” to the contracting employer. The new law provides that a “client employer,” defined as a business entity that obtains or is provided workers to perform labor within its usual course of business from a labor contractor, will share responsibility and liability with the labor contractor for payment of wages and failure to secure valid workers’ compensation coverage. The definition of “client employer” excludes businesses with a workforce of fewer than 25 workers (including both employees and temp hires) and those with 5 or fewer temp workers at any given time. The law also includes an anti-retaliation provision.

This bill, which was co-sponsored by interest groups including the California Labor Federation, AFL-CIO, California Teamsters Public Affairs Council, and United Food and Commercial Workers Union, is part of a nationwide effort to expand the joint employer standard. Opponents, including the California Chamber of Commerce, argued that this bill invades two already complex areas of law, independent contractor classification and joint employment, with no guidance for courts who will now have to determine how this law should affect their analysis under the established standards. We have reported on similar encroachments in other jurisdictions, and employers can expect these efforts to continue. 

One bright spot for employers, though, is that the law affirms the rights of the contracting employer to enforce by contract “any otherwise lawful remedies” against contracting parties, meaning employers can contract for indemnification rights. Employers who rely upon staffing services and similar labor contractors to provide workers will want to review their contracts with those entities and consider including appropriate indemnification clauses. Contracting employers should consider whether to seek assurances that the labor contractor has adequate insurance and/or resources to cover this shared liability. Contracting employers may also want to consider requiring arbitration agreements with class action waivers in their agreements with the temporary workers.