Business Must Carefully Balance the Risks

Effective January 1, 2015, California Assembly Bill 1897 makes employers that hire workers from staffing agencies automatically liable for wages and workers’ compensation violations by the staffing agencies. Labor unions promoted this new law. The California Chamber of Commerce opposed it.

AB 1897 makes it easier for a worker who alleges underpayment of wages from a staffing agency to seek payment from the employer utilizing that worker’s services. Previously, that worker would have to file suit to prove the agency and business were true “co-employers” under potentially complicated rules on rights of control of the employee’s labor. Under AB 1897, no such proof will be needed. Indeed, if a staffing agency fails to pay proper wages, including overtime, to a worker, that person can go directly to the employer using the worker’s services to demand payment even without filing suit.

Under AB 1897, a California employer must also now pay for work comp coverage in the event that its staffing agency fails to do so.

The law does not apply to companies with fewer than 25 employees (including those hired from staffing agencies) nor to employers using five or fewer temporary workers from a staffing agency. It also does not apply to legitimately exempt-from-overtime workers, to government employers or to certain industries, including specific motor carriers, cable, telephone and satellite providers. Also excluded are certain organizations or programs covered by collective bargaining agreements, bona fide non-profit community programs servicing workers, and motion picture payroll services companies.

This new law of course requires business’s greater diligence in hiring a known and reputable staffing company that maintains the required workers compensation and that complies fully with all California compensation laws, including proper wage documentation and overtime calculations. Such due diligence could include:

● Request and review of the staffing agency’s documented financial solvency and ability to pay its workers;

● Requiring the agency’s standard provision to the business of the payroll records sufficient to confirm compliance with applicable laws on paystub information and compensation calculations;

● Request and review of the staffing agency’s applicable workers’ compensation policy;

● Written agreement the agency’s carrier will promptly deliver notice to the business of any impending or actual change in coverage; and

● Regular confirmation with the affected workers that the agency is paying them properly.

An employer’s higher accountability standards also increase the necessity to include sound indemnification provisions in staffing agency contracts, committing the agency to reimburse the business for any expense incurred (including attorney fees) by that agency’s failure to meet its payroll or work comp coverage obligations.

A worker must give an employer 30 days’ notice if it intends to file a civil lawsuit against the employer under this statute. Such civil suit may include “class actions,” in which one or more workers may carry the similar claims of multiple co-workers, or “representative actions,” which also seek to include multiple co-workers under special procedures and criteria. For more on class actions in California, see “Contractor Missclassification . . . Class Action?”

If you have any questions about the new law, Tim Bowles, Cindy Bamforth and Helena Kobrin of our firm would all be pleased to answer your questions.

Helena Kobrin, December 30, 2014