The start of the year is usually very busy for people, so taking a moment to review the new laws is not always possible. As we move into the second quarter of this year, we wanted to remind you about a new law that went into effect in California on January 1, 2015, that applies to an employer who works with a staffing agency or labor contractor.
The new law (AB 1897) is now section 2810.3 of the California Labor Code. An employer needs to be very careful in using a staffing agency (someone who rents the employer’s employees back to it) and labor contractors, because if the agency or contractor, fails to pay wages, taxes, or the cost of workers’ compensation insurance coverage, the employer could still be required to pay for these costs, together with any penalties that might be due for nonpayment. And, it makes no difference whether the employer has knowledge that the agency or labor contractor is failing to pay wages, taxes or fails to obtain workers’ compensation coverage. In other words, innocence is not a valid defense. Under current law, there is already a prohibition against certain kinds of employers entering into a contract for labor or services with a construction, farm labor, garment, janitorial, security guard, or warehouse contractor, if the employer knows or should know that the agreement does not include sufficient funds to pay employment compensation and legally required benefits. The new law also expressly provides that it does not limit any other theories of liability or requirements established by other statutes or common law.
However, the new law does not apply to most small employers, i.e. employers with less than 25 employees even when the rented employees are counted or where the employer rents 5 or less employees. However, the law makes it necessary for an employer to really do its “due diligence” in selecting a financially sound staffing agency or labor contractor; and, employers should carefully review the terms of their contract with these companies to make sure there are adequate hold harmless and indemnity provisions in their agreements with them to insure that the employer is protected in the event of a failure to pay or provide coverage by the agency or contractor.
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