Prior to January of 2015, a temporary worker provided to a company by a labor contractor or staffing agency had little recourse when that contractor or agency failed to abide by the law regarding wages and/or the provision of workers’ compensation insurance. The only way that the company employer could bear any responsibility was if a worker could prove that there was a joint employer status or if the company knew or should have known that the contract entered into with the labor contractor did not provide sufficient funds to ensure that its’ employees would be properly paid.

That scenario changed when Governor Jerry Brown signed into law Assembly Bill 1897 on September 28, 2014 which is codified as California Labor Code Section 2810.3(i). The new law, which became effective on January 1, 2015, holds the companies that contract with labor contractors or temp agencies are jointly liable when the contractor or agency fails to properly pay their workers or to protect them by having workers’ compensation insurance.

While protecting the worker, the law essentially puts the burden on companies using the labor contractors or temporary agencies to perform a diligent investigation in an effort to assure that the contractor or agency is abiding by the law. In the alternative, the law adds s significant liability risk for the client employer or company that use their services. Part of that risk would include a levy of hefty fines by the State.

The bill had strong support by the Teamsters and the California Labor Federation, who were also trying to unionize various workers, and strong opposition by the California Chamber of Commerce and other industry groups. The Chamber had argued that the passage of the bill would punish some businesses for violations that they were not aware of and had no ability to prevent or control. It also believed that it would make it more difficult for California employers to do business in the State and to attract other businesses to come to California. This was predicated on the fact that many businesses use the temporary workers on an “as needed” basis rather than hiring employees on their own.

The temporary workers actually work for the labor contractor or agency and, until now, the client employer has been able to deny any responsibility when the fees paid for the temporary worker do not translate into a fair wage. There are also instances where the worker may not have been covered by workers’ compensation insurance and were not protected when injured on the job working for the client employer. A report which provided strong ammunition for the passage of the bill was done by an outside group identified as ProPublica. Their report showed that temporary workers faced a 50% greater risk of being injured on the job for the client employer than permanent employees. Whether this was due to a failure to have the proper training to perform the job for which they were hired or due to some other factor is unknown.

There are exceptions in the new law including governmental entities, those companies that hire 5 or less temporary workers at any given time or those that have less than a total of 25 employees, including the temporary worker, in their work force. Moreover, the law provides that businesses that use labor contractors are not prohibited from establishing, exercising or enforcing by contract any lawful remedies against the labor contractor for liabilities that are created by that contractor, such as indemnity clauses in the contract. However, any attempt to waive joint liability is void and unenforceable.

Where do we go from here? Companies will need to be more careful in their selection of labor contractors, including researching whether the contractor has had labor law compliance problems in the past. Existing contracts will need to be reviewed to determine if there should be indemnification provisions or other remedies including requirements for appropriate insurance with additional insured coverage. Insurance carriers will need to be advised of the potential of an additional risk. Thereafter it will take some time to see the actual effect on the business of both the client employer and the labor contractors and temporary agencies.