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California Labor Contractor and Independent Contractor Issues

California has, for a variety of reasons, become a particularly hostile environment for alternative workforces over the past few years. The court decisions over the past year have been quite aggressive in attacking a variety of independent contractor models. As has been the case, the key items of focus are the control the service recipient exercises over the worker providing the service and the question of integration of the work done into the general activities of the business to whom the services were provided.

On a parallel track, the legislature has been very active regulating what amounts to contracting out labor in the janitorial, construction, farm labor, garment, security guard and more recently warehousing industries. In those spaces, existing law prohibits contracting on terms the service recipient knows or should know are inadequate to permit the other party to perform the contract and comply with existing California law as to its own workforce. A classic example would be a contract where it is foreseeable based on past experience that the amount paid would be inadequate for the number of hours to get the job done unless a sub minimum wage was paid.

California took that concept one step further and into all industries with AB 1897. In essence, if you are a business which employs 25 or more workers (including all engaged by outsourced Labor Contractors) and obtain the services of at least five workers through a Labor Contractor, you share all civil liability and legal responsibility with the Labor Contractor for payment of wages, safety and workers’ compensation. A Labor Contractor, for this purpose, 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. There are some exceptions.

The reason this matters beyond the exposure under the new statute is the concept of doing harm while trying to do good or iatrogenics. It would not be all that difficult to manage your AB 1897 risk by putting contract obligations and reporting requirements on your Labor Contractor’s workforce. Doing that, however, may come painfully close to the kind of control that places independent contractor status in peril. The Labor Contractor almost by definition is providing services in an area close enough to the usual course of business that it may satisfy the integration component of independent contractor misclassification, which carries its own stiff penalties.

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About this Author

James Nelson, Greenberg Traurig Law Firm, Los Angeles, Sacramento, Phoenix, Labor and Employment Attorney

James M. Nelson is Co-Chair of the firm’s National Labor & Employment Practice’s ERISA Litigation team, as well as, Chair of the Sacramento office’s Labor & Employment Practice. He represents employers and ERISA plan fiduciaries in matters concerning ERISA compliance, fiduciary responsibility, collective bargaining, wage and hour, employee benefits, safety, discrimination, wrongful termination, and other labor and employment issues.

His experience includes complex litigation, class action defense, administrative proceedings and appeals,...