POTENTIAL JOINT EMPLOYER LIABILITY WITH STAFFING AGENCIES
Employers (referred to as “client-employer”) who obtain workers through a “labor contractor” (e.g. staffing agencies) can be held liable for the wage and hour violations committed by the staffing agency even if the employer has already paid the staffing agency for the labor services provided. This liability was created by Labor Code section 2810.3 which was effective in 2015.
Prior to the enactment of Labor Code section 2810.3, workers of a labor contractor were required to prove the existence of a “joint employer” or “co-employer” relationship between the labor contractor and the client-employer to hold the client-employer liable. Now the liability is virtually automatic.
Under the code, if the “labor contractor” places workers at the “client-employer” and the labor contractor fails to comply with the litany of wage and hour laws or does not properly maintain workers compensation insurance, the “client-employer” can be held liable for such violations. The client-employer will be held liable regardless of whether or not it knew that the staffing agency was violating the law.
The Labor Commissioner has used Labor Code Section 2810.3 to hold “client-employers” liable for the misdeeds of staffing agencies but there have been few reported civil cases under this code section. Employers should be aware that Plaintiff’s attorneys are starting to pay attention to the potential of this type of claim.
The law applies to “client-employers” with more than five workers supplied by the labor contractor and 25 total employees (including those employees supplied through the labor contractor).
Under the Labor Code, “client-employer” means a business entity, regardless of its form, that obtains or is provided workers to perform labor within its usual course of business from a labor contractor.
A “labor contractor” is an individual or entity that supplies, either with or without a contract, a client-employer with workers to perform labor within the client-employer’s usual course of business. “Labor contractor” does not include a bona fide nonprofit, community-based organization that provides services to workers; a bona fide labor organization or apprenticeship program or hiring hall operated pursuant to a collective bargaining agreement; a motion picture payroll services company, (as defined) and a third party who is a party to an employee leasing arrangement (as defined).
A contractual waiver between the labor contractor and the client-employer is not permitted so that a business cannot contractually escape the risk of joint liability. But contractual indemnification is permitted.
What Should Businesses Do Now?
- Carefully review existing contracts with staffing agencies to determine if indemnification language is contained in the agreement, including a provision for legal fees and costs incurred in defending against such claims.
- Evaluate the staffing agency’s financial ability to defend claims.
- Choose staffing agencies carefully and confirm their commitment to compliance on California wage and hour laws focusing on the proper payment of wages, providing proper wage statements, and paying overtime.
- Require staffing agencies to provide certificates evidencing workers’ compensation insurance coverage for workers supplied.
- Undertake audits of time records and meal breaks, pay stubs to confirm compliance.
- Ensure temporary workers are provided with appropriate safety training to comply with Cal-OSHA requirements.
LATE PAYMENT OF WAGES RESULTS IN INCREASED PENALTIES FOR EMPLOYERS
Now, with the amendment to Labor Code §210 employees are permitted the right to file a civil lawsuit seeking penalties for the late payment of payday wages. Before only the Labor Commissioner was permitted to seek penalties under Labor Code §210.
Under §210, the penalties for late paid wages are $100 for the first violation and $200 for each subsequent violation. In addition, the employer must pay 25 percent of the wages that were paid late, and this can add up quickly. This code section can be applied in actions asserting misclassification of workers as independent contractors where the worker was not paid “wages” and hence they claim the “late payment” or where a worker was misclassified as exempt and was not paid overtime wages.
For example, an employee’s biweekly pay is $1,200. If the employer pays the employee late (a first violation), the employee can recover $400 ($100 penalty plus 25 percent of $1,200, or $300). Multiply this by each pay period and the amount can be staggering.
Prior to the amendment of Labor Code Section 210 an employee could seek similar penalties for late pay only through a Private Attorney General Act (PAGA) claim. Under PAGA, the penalty is only $100 or $200, but 75 percent of the penalty was paid to the State of California. Under Section 210, nothing is shared with the State. So, given the option employees may start to opt for Labor Code Section 210 actions and forego the PAGA claims as the employee cannot sue for both.
What Should Businesses Do Now?
- Review all payroll practices to ensure the timely payment of all wages.
- Review employees classified as exempt to ensure the proper classification.
- Review all independent contractor relationships (which should already be undertaken due to the changes to AB5).
This Newsletter is intended as a brief summary of employment law. While every effort has been made to ensure the accuracy of the information contained herein, it is not intended to serve as “legal advice,” or to establish an attorney-client relationship. If additional information is needed on any of the topics contained herein, please contact our office. All rights reserved. ©2020.