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Posted October 22, 2014 --> • Legislation

On September 28, 2014, the California Legislature enacted Assembly Bill (“AB”) 1897, which created California Labor Code section 2810.3.  The new law holds companies accountable for violations of workers’ rights committed by their labor suppliers.  Although it was intended to address perceived abuses in the agricultural industry, the new law applies to virtually every industry, including construction.  Although it remains to be seen how the new law will impact contractors, or how strictly it will be enforced by the courts in a construction context, all contractors should be aware of the new law.  Contractors who utilize labor contractors on their projects may want to consider implementing procedures to minimize the risk of being sued by workers employed by a labor contractor, or of being fined by the state’s designated enforcement agencies.

Under Labor Code section 2810.3, a contractor (a “client employer” under the statute) now shares with its labor contractor all legal responsibility and liability for workers supplied by the labor contractor for (1) payment of wages and (2) failure to secure valid workers’ compensation coverage as required by Labor Code Section 3700.  The law also prohibits the contractor from shifting to the labor contractor legal duties or liabilities for workplace safety.  The law provides the labor contractor employee with a right to file a lawsuit against the contractor without first seeking to obtain relief from his/her actual employer, the labor contractor.  An attempted waiver of Section 2810.3 is contrary to public policy and is void and unenforceable.  Likewise, any indemnity provision which attempts to shift to the labor contractor liability for wage and/or workers’ compensation violations or workplace safety would be unenforceable.  Importantly, the law does not prohibit a contractor’s right to create and enforce by contract any other lawful remedies it has against the labor contractor for liabilities resulting from his acts or omissions (e.g., indemnity for negligence).  The California Labor Commissioner, OSHA and EDD are the authorized enforcement agencies

 How section 2810.3 will be implemented, and how aggressively it will be enforced in the construction industry remains to be seen.   It is worth pointing out that construction laborers already have certain legal rights to protect against wage violations, such as prevailing wage claims against a prime contractor on public projects and mechanic’s lien clams on private projects.  Therefore, it is questionable whether this law is even necessary, or will have much of a practical effect on the construction industry.  With that said, there is no disputing that the new law increases a contractor’s potential liability.  As such, contractors may want to implement extra precautions when using contract labor, such as paying with joint checks and/or insisting that each employee submit a statutory waiver in return for each payment.  Additionally, contractors may consider requiring that their labor contractors provide monthly proof of workers’ compensation insurance.  Although these extra precautions would result in an additional administrative burden for project personnel, it may be worth it to reduce the potential exposure under the new law.  It should be noted that the application of Section 2810.3 is limited to “labor contractors,” and does not apply to subcontractors or Unions.

Only time will tell how this new law will impact the construction industry.  However, in the meantime, contractors would be wise to increase their oversight of a labor contractor’s payments to its employees, and ensure that it has valid workers’ compensation insurance.

Christopher M. Rogers, Partner