• New Law Puts California Operators in Labor Bind
  • May 1, 2015 | Author: Jeffrey S. Horton Thomas
  • Law Firm: Thomas Employment Law Advocates - West Hollywood Office
  • Effective January 1, 2015, restaurants, bars, hotels and other businesses that bring in workers through other companies - such as outside valet parking, security, landscape maintenance and temp companies - will be liable to the workers whenever their actual employer (the valet parking company, for example) fails to pay them overtime, fails to provide meal or rest breaks, fails to pay them on time when they’re fired or quit, or violates other wage-related requirements. In short, the new law, Labor Code section 2810.3, makes California businesses liable for wage-related violations committed by companies other than themselves and against workers who are not their employees. The new law is a striking change in the already hostile landscape in California. Businesses must prepare now in order to avoid liability.

    A Brave New World: Liability to Workers Who Aren’t Your Employees

    Under section 2810.3, an individual or company of almost any type that sends its non-exempt (hourly) employees to another company’s business premises (such as a restaurant or bar) is referred to as a “labor contractor.” The business that receives workers through a “labor contractor” to perform services in the ordinary course of that business’s operations is referred to as a “client employer.” The law doesn’t apply to client employers with fewer than 25 non-exempt workers. (In counting workers for purposes of this threshold, the client employer’s own employees and workers provided by labor contractors are all counted. For example, if a business has, say, 21 non-exempt employees of its own and four workers on-site from a labor contractor, section 2810.3 applies.) The law also doesn’t apply to any client employer having five or fewer workers provided by labor contractors at any one time. Unions, motion picture payroll services and certain employee leasing companies are not “labor contractors” under the law.

    Each “client employer,” the law provides, “shall share with a labor contractor all civil legal responsibility and civil liability for all workers supplied by that labor contractor” for wage-related violations and the failure to maintain workers compensation insurance.

    Section 2810.3 applies to virtually every type of business in California. Owners of office buildings and property management businesses, for example, typically hire outside companies to provide workers on-site to perform services such as security, janitorial, window washing, valet parking and landscape maintenance. Small office buildings in Los Angeles commonly have dozens of such workers on their premises each month; large office buildings have hundreds working on their premises each month. The new law makes the office building owner or property management company liable to such outside workers for wage-related violations despite the fact that the office building owner or property management company is not the workers’ employer.

    The Liabilities will be Costly

    The liabilities businesses will “share” with the “labor contractors” that bring workers onto their premises include liability for a labor contractor’s failure to pay regular or overtime wages, commissions and premium wages where meal or rest breaks aren’t provided, liquidated damages where minimum wage isn’t paid, waiting time penalties if workers aren’t paid on time on their termination, penalties payable to the workers and the state of California in connection with wage violations and attorney’s fees awards.

    Under section 2810.3, workers will have their choice of suing their employers (the labor contractors) and the “client employers” in court or filing claims against them with the Labor Commissioner. Under the law, workers may choose to assert their claims against both the labor contractor and the client employer or either one, alone. Regardless, the law appears to make client employers and labor contractors jointly and severally liable to the workers, that is, any liability to the workers or the state won’t be split 50/50 or otherwise between the labor contractor and the client employer; rather, they each may suffer judgments for 100% of the damages, penalties and attorney’s fees awarded.

    The purpose of the new law is to help ensure that employees receive the pay and benefits they earn. In order to achieve this, the Legislature has given workers and their attorneys a second pocket to go after when rights are allegedly violated, namely, companies that aren’t the workers’ employer. The unfairness in section 2810.3, however, is that the law makes businesses liable for service providers’ violation of their legal obligations to their own employees despite the fact that the businesses receiving the services have no ability to control when and how the service providers pay their employees, provide them with meal and rest breaks, etc.

    Act Now to Protect Yourself

    Plaintiffs’ attorneys will use section 2810.3 to sue client employers along with plaintiffs’ actual employers, the labor contractors. Businesses must take steps now to avoid what will otherwise often be substantial liability under the new law:

    1. Businesses must pay closer attention to who they hire as service providers. The vendor charging the cheapest rates won’t necessarily be the least costly one in the long run.

    A labor contractor with a history of being sued by its employees for wage and hour violations is probably not the service provider to hire; businesses may want to have their counsel conduct litigation searches before hiring important, new service providers. Further, before hiring a service provider, it may be prudent to require the service provider to allow some inspection of its internal wage practices, that is, due diligence.

    2. New written contracts must be entered into between businesses and each labor contractor they use. Each contract must contain representations and warranties by the labor contractor expressly assuring the business that the labor contractor will perform in full its wage-related duties to its employees, including the workers the labor contractor sends to the client employer’s premises.

    Further, each contract must provide that the labor contractor will defend and indemnify the business for any wage-related losses, penalties and attorney’s fees in connection with the labor contractor’s employees. Section 2810.3 makes “void and unenforceable” any attempt by a client employer to waive its liability under the new law. However, the law preserves the client employer’s right to provide by contract that the labor contractor must defend and indemnify the client employer for liabilities under section 2810.3.

    Defense and indemnification provisions will be worthless, of course, if the labor contractor goes out of business when the wage-claim dispute arises or doesn’t have the money to resolve the dispute for the client employer and itself. For this reason, it is now more important than ever that businesses select long-standing, financially secure service providers who provide on-site labor.

    It is a certainty that the contracts in effect now between businesses and their outside service providers do not contain the provisions needed, as joint liability between an outside service provider-employer with its clients for wage-related violations wasn’t on anyone’s mind before the passage of the new law late this year.

    3. Businesses should attempt to require that their service providers maintain EPLI insurance and name the client-employer business as an additional insured.

    4. Some businesses may be tempted to go further and become involved in their service providers’ wage practices to make sure workers are paid as they should be. Resist the temptation. Although exercising due diligence before hiring service providers is necessary, becoming involved in the service providers’ personnel practices once the business has hired the labor contractor risks subjecting the business to liability for the labor contractor’s violations in other areas of employment law, e.g., discrimination, harassment, retaliation, etc., under “joint employer” theories of liability.

    5. As another approach entirely, businesses may hire on their own employees to perform services they previously outsourced. For example, the property management company that had used an outside janitorial company may choose to terminate that relationship and hire its own employees to perform the janitorial function. This approach, of course, raises other cost, insurance and liability considerations.

    California hospitality operations and their counsel who don’t prepare now for this new potential liability risk suffering a new variety of litigation and substantial, unplanned expense.