New California Law Makes Businesses Liable for Unpaid Wages to Employees of Outside Service Providers

January usually brings about a slew of additional draconian labor laws in California. January 2015 was no exception. As of January 1, 2015, California restaurants, bars, hotels and other businesses that bring in workers through other companies–such as outside valet parking, security, landscape maintenance and even temp agencies will be liable for the wages of the employees of the service providers (i.e. the valet company) when the service provider fails to pay the employees all wages due, overtime, provide meal or rest breaks, pay them in a timely fashion, or if any other wage-related requirement is violated.  Yes, the conclusion you drew from the last sentence is correct, the new law,California Labor Code section 2810.3, makes businesses liable for Labor Code wage violations committed by companies other than themselves and against workers who are not their employees.

Under this new law, a company that sends its nonexempt employees to another company’s business premises is referred to as a “labor contractor.” The restaurant or other business that receives workers through a “labor contractor” to perform services in the ordinary course of that business’s operations is referred to as a “client employer.”

Each “client employer…shall share with a labor contractor all civil legal responsibility and civil liability for all workers supplied by that labor contractor” for wage-related violations and the failure to maintain workers compensation insurance.  Yes, you read that right…

The potential liability will be costly and will include:

1. Liability for a labor contractor’s failure to pay regular or overtime wages, commissions and premium wages where meal or rest breaks aren’t provided;

2. Liquidated damages where minimum wage isn’t paid;

3. Waiting time penalties if workers aren’t paid on time on their termination; and

4. Penalties payable to the workers and the state of California in connection with wage violations and attorney’s fees awards.

Under the law, workers may choose to assert their claims against both the “labor contractor” and the “client employer” or either one, alone.

As a result of this new law:

1. Restaurants and Other Businesses Must Pay Closer Attention to who they Retain as Service Providers.

The vendor charging the cheapest rates will not necessarily be the least costly one in the long run.  Do a background check on all vendors.  A vendor with a history of being sued by its employees for wage and hour violations is now going to get you in trouble too.

2. New Written Contracts with Vendors Must be Used to Incorporate the New Law.

Each contract must contain representations and warranties by the “labor contractor” stating that the “labor contractor” will comply with all wage-related duties to its employees.  Each contract should also provide a duty to defend and indemnify the business owner for any wage-related losses, penalties and attorney’s fees in connection with the “labor contractor” employees.

3. Businesses Should Attempt to Require that Their Service Providers Maintain Employment Practices Liability Insurance.

Business owners should require the “labor contractors” to maintain EPLI insurance policies and name the business as an additional insured.

California business owners who do not prepare for this potential liability risk suffering a new variety of litigation and substantial, unplanned expenses.  Please contact the author regarding this law or any other California employment issues.

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