Effective January 1, 2015, Labor Code section 2810.3 expanded California employer’s liability beyond its own employees, and made certain employers jointly liable for wage and hour violations committed by “labor contractors,” such as staffing agencies. Here are five items California employers must understand about this joint employer liability:
1. Labor Code section 2810.3.
Effective January 1, 2015, Labor Code section 2810.3 expanded the liability of “client employers” that obtain workers through temporary agencies or other labor contractors. The law requires that the client employer who obtains the workers through the agency must share in the liability for any wage and workers compensation issues. The law also provides that a client employer cannot shift all of the liability for wage and workers’ compensation violations.
2. Labor Code section 2810.3 excludes employers based on size.
Labor Code section 2810.3 states that “client employer” does not include any of the following companies based on size:
(i) A business entity with a workforce of fewer than 25 workers, including those hired directly by the client employer and those obtained from, or provided by, any labor contractor.
(ii) A business entity with five or fewer workers supplied by a labor contractor or labor contractors to the client employer at any given time.
3. Companies contracting for services need to ensure the subcontractors follow all applicable wage and hour laws and pay the employees properly.
With the joint liability created by Labor Code section 2810.3, companies contracting for labor at their establishments need to take steps to ensure that the contractors are following wage and hour laws. This may entail reviewing the contractor’s pay practices. The hiring company should also ensure that there are some assets or potential insurance that would be available should indemnity be required.
4. California Labor Commissioner held Cheesecake Factory liable for $4.57 million for wage and hour violations under Labor Code section 2810.3.
Cheesecake Factory restaurants in Southern California were cited for $4.57 million for wage and hour violations and penalties by the Labor Commissioner in June, 2018. The citation was based on alleged wage violations for employees of contractors hired by Cheesecake Factory, not its own employees. The investigation focused on the janitorial subcontractors who performed work at the restaurants. The Labor Commissioner found that the janitorial employees were not paid for all minimum wage, overtime, not provided meal and rest breaks, and not paid for split shifts.
The subcontractor janitorial company was Americlean Janitorial Services Corp., a Minneapolis company doing business as Allied National Services, Inc. The workers were managed by a San Diego-based company, Magic Touch Commercial Cleaning. The Labor Commissioner alleged that the workers had to work additional hours when asked to complete tasks or wait for approval of their work by the Cheesecake Factory managers.
5. Consider indemnity agreements with staffing agencies and labor contractors.
Labor Code section 2810.3 provides that the client employer can seek indemnity from the labor contractor for violations. The hiring company should consider negotiating an indemnity provision in the contact with the labor contractor to protect itself should any wage and hour liability that arises.