Stay Informed

A law that became effective January 1, 2015, imposes responsibility for wages and workers’ compensation coverage for workers obtained from a labor contractor who fails to pay such wages and/or provide such coverage. Under the new law (AB 1897), a company that obtains workers from a labor contractor becomes jointly liable for the wages and workers’ compensation coverage for such workers if the labor contractor fails to pay or provide coverage, even if the company using those laborers did not know that the labor contractor had failed to pay.

This new law applies to companies that obtain workers from a contractor to perform labor within the usual course of business, such as companies that hire temporary staff from an agency. The law does not apply to:

1. Companies with less than 25 workers, including workers obtained from a labor contractor;

2. Companies with 5 or few workers obtained from a labor contractor; or

3. Workers supplied by a non-profit organization, labor organizations or apprenticeship programs that operate under a collective bargaining agreement, or a motion picture
payroll service company.

The law invalidates any purported waiver of its provisions. In short, a company that makes use of labor contractors as part of its usual course of business can find itself liable for wages and/or workers’ compensation insurance if the labor contracting company providing those workers does not cover the wages and workers’ compensation insurance in full. This is so whether there is an actual, formal contract with the labor provider or not. The hiring company may, however, contractually require the labor provider to indemnify it. Of course, if the labor provider is insolvent (which is usually the situation when wages have not been paid), such an indemnity provision would be of little value.

Companies that make use of workers provided by labor contracting firms thus need to be especially careful to insure that they are dealing with responsible, solvent providers.