BILL ANALYSIS Ó
Senate Committee on Labor and Industrial Relations
Senator Ben Hueso, Chair
Date of Hearing: June 11, 2014 2013-2014 Regular
Session
Consultant: Deanna D. Ping Fiscal: Yes
Urgency: No
Bill No: AB 1897
Author: Hernandez
As Amended: May 28, 2014
SUBJECT
Labor contracting: client liability.
KEY ISSUE
Should the legislature require client employers that obtain
workers from third party labor contractors to share liability
for certain labor violations such as failure to pay wages and
workers' compensation?
ANALYSIS
Existing California common law theory of joint employment
requires a determination as to whether the entity in question
has the right to direct and control the manner and means by
which the work is performed, known as the "right of control"
test. (S. G. Borello & Sons, Inc. v Dept. of Industrial
Relations (1989) 48 Cal.3d 341. and Martinez v. Combs (2010) 49
Cal.4th 35)
Existing law requires that both garment manufacturers and farm
labor contractors are licensed and/or registered, and regulated
by the Division of Labor Standards Enforcement.
(Labor Code §1697.5 & 2675)
Existing law requires that a person engaged in garment
manufacturing who contracts with another person for their
performance of garment manufacturing operations shall guarantee
the payment of the minimum wage and overtime. (Labor Code
§2673.1)
Existing law states that an entity shall not enter into a
contract for labor or services with a construction, farm labor,
garment, janitorial, security guard, or warehouse contractor,
where the entity knows or should know that the contract does not
include funds sufficient to allow the contract to company with
all applicable local, state, and federal laws. (Labor Code
§2810)
This bill establishes specified liability for client employers
that obtain workers from third-party labor contractors.
Specifically, this bill :
1)Defines "client employer" as a business entity that obtains or
is provided workers to perform labor or services within its
usual course of business from a labor contractor. This
definition does not include business entities with a workforce
of less than 25 workers or the state or any political
subdivision of the state.
2)Defines "labor contractor" as an individual or entity that
supplies, either with or without a contract, a client employer
with workers to perform labor or services within the client
employer's usual course of business. This does not include
i) A bona fide nonprofit, community-based organization
that provides services to low-wage workers
ii) A bona fide labor organization or apprenticeship
program
iii) A motion picture payroll services company.
3)Clarifies that worker does not include an employee who is
exempt from the payment of an overtime rate of compensation
for executive, administrative, and professional employees.
4)Defines "usual course of business" as the regular and
customary work of a business, performed within or upon the
premises or worksite of the client employer.
5)States that a client employer shall share with a labor
contractor all civil legal responsibility and civil liability
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Senate Committee on Labor and Industrial Relations
for all the following:
i) The payment of wages to workers provided by a labor
contractor
ii) The failure to report and pay all required employer
contributions, worker contributions, and personal income
tax withholdings
iii) Failure to secure valid workers' compensation
coverage.
6)Prohibits a client employer from shifting any legal duties to
the labor contractor related to workplace health and safety.
7)Clarifies that these provisions are in addition to, and shall
be supplemental of, any other liability or requirement
established by statute or common law.
8)Specifies that this bill does not prohibit a client employer
from establishing, exercising, or enforcing by contract any
otherwise lawful remedies against a labor contractor for
liability created by acts of a labor contractor, and vice
versa.
9)Provides that, upon request by a state enforcement agency or
department, a client employer or a labor contractor shall
promptly provide to the agency or department any information
required to verify compliance with applicable state laws.
10)Authorizes the Labor Commissioner, the Division of
Occupational Safety and Health, and the Employment Development
Department to adopt regulations and rules of practice and
procedure necessary to administer and enforce the provision of
this bill.
11)Makes a waiver of this section contrary to public policy, and
is void and unenforceable.
12)Clarifies that this section shall not be interpreted to
impose individual liability on a homeowner or the owner of a
home based business for labor and services received at the
home or to impose liability on a client employer for the use
of a bona fide independent contractor.
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COMMENTS
1. The Trend Towards Temporary Work in the United States:
In recent years, some workers and worker advocates have
noticed an increase in the number of employers who are moving
away from a traditional employment model towards a business
model that utilizes "subcontracted" or "contingent" workers.
In June 2013, the U.S. Department of Labor reported that the
nation has more temporary workers than ever before: 2.7
billion.
In a traditional employment relationship, an employer directly
hires its own workers, pays their wages and provides their
benefits, and controls their day-to-day work. However, a
variety of other employment models have developed over the
years. Numerous terms are used to describe these alternative
types of work arrangements: contingent work, nonstandard work,
contractual work, seasonal work, freelance work,
"just-in-time" or "temp employment," or "permatemps."
Contingent work can take several forms and is prominent in
many industries. The garment industry for example has been
reliant on subcontracting for years to manufacture, sew and
press garments. The agricultural is another historical example
of subcontracting work as farm labor contractors are used to
hire agricultural workers to harvest and perform work on
farms. However, contingent or temporary work has expanded into
other sectors from professional occupations like nursing,
accounting, and computer programming to warehouse work in
transportation and material moving, housekeeping and
landscaping, and manufacturing.
2. Subcontracting and the Potential Public Policy Challenges:
According to a 2012 UC Berkeley Labor Center report,
middle-class long-term jobs are shifting to include more
temporary and subcontracted employment. (Temporary Workers in
CA are twice as likely as non-temps to live in poverty:
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Problems with Temporary and Subcontracted work in CA, August
2012) This type of contingent work has been growing over the
past two decades. The report notes that, "In California
almost one-quarter of a million people worked in the temporary
help services industry in 2010; another 37,000 people worked
for employee leasing firms totaling 282,000 workers in these
two industries."
According to the report, temporary and subcontracted work
present two basic public policy problems, 1) that temporary
and subcontracted arrangements erode wages [leading contingent
workers to rely more on the state services] and 2) temporary
and subcontracted arrangements undermine existing worker
protections first by allowing employer to avoid certain worker
provisions, and second by making enforcement of the remaining
protections difficult. The report suggests that solutions to
this problem range from increasing low wages to mandating the
same pay for temporary workers. In addition, the report
suggests that "policies to combat retaliation and hold other
actors in the supply chain accountable are promising ways to
uphold existing worker protections in the face of workplace
changes."
This issue was the topic of an informational hearing held by
the Assembly Committee on Labor and Employment on March 12,
2014, "Protecting Workers and Strengthening the Enforcement in
the Subcontracted Economy."
3. Profile of Subcontracted Work in California:
In March 2014, the National Employment Law Project (NELP)
released a paper highlighting key facts about subcontracted
work in California. The paper noted the following statistics:
Subcontracted and temporary jobs are on the rise:
o According to the Government Accountability
Office, an estimated 31 percent of the workforce
could be considered "contingent workers" in 2005.
o Almost one-fifth of total job growth since
the end of the recession in 2009 is in the temporary
sector; according to the American Staffing
Association, one in every ten workers finds a job at
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a staffing agency.
Workers and communities suffer in jobs provided by
labor suppliers:
o Temporary workers earn lower wages, fewer
benefits, and have less job security. A UC Berkeley
study found that median hourly wages were $13.72 for
temps, versus $19.13 for non-temporary workers in
California.
o California recorded the highest number of
fatal occupational injuries among contractors in the
United States. California's temporary workers face a
50 percent higher risk for injury on the job and are
twice as likely as regular workers to be stricken by
heat exhaustion.
Low-income, immigrant, and communities of color
workers are more likely to work for labor suppliers:
o Temporary workers are twice as likely to
be on government assistance. 18.8 percent of
temporary workers in California lived in poverty, as
compared to 8.9 percent of non-temp workers.
o Temporary workers are more likely to be
non-white or Hispanic and without a high school
diploma or GED. 65 percent of temporary workers are
non-white or Hispanic, compared to 55.6 percent of
non-temp workers.
4. Joint Employment Liability - Case Law:
Currently, a temporary worker can seek to hold a third party
liable for certain labor obligations under the traditional
common law theory of joint employment. In NLRB v.
Browning-Ferris Indus., 691 F.2nd 1117 (3rd Cir. 1982), the
National Labor Relations Board applied a standard enunciated
by the Supreme Court in Boire v. Greyhound Corp., 376 U.S. 473
(1964) that "the question of 'joint employer' is a factual one
and requires an examination into whether an employer who is
claimed to be a 'joint employer' possessed sufficient control
over the work of the employees -now often referred to as the
'right of control' test.
The interpretations of this common law test can vary as courts
and administrative agencies have adopted varying sets of
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criteria to consider and how each is interpreted. In S.G.
Borello & Sons, Inc. v. Department of Industrial Relations
(1989) 48 Cal.3d 341, the California Supreme Court followed
the common law tradition and declared that "the principle test
of an employment relationship is whether the person to whom
service is rendered has the right to control the manner and
means of accomplishing the result desired." More recently, in
Martinez v. Combs (2010) 49 Cal.4th 35, the California Supreme
Court defined an employer as one who engages or permits any
person to work or exercises control over the wages, hours, or
working condition of any person as outlined by the Industrial
Welfare Commissions' (IWC) Wage Order 14-2001.
5. Need for this bill?
As the 2012 UC Berkeley Labor Center report discussed above
illustrates, the prevalence of temporary work in California
presents unique policy challenges as temporary or
subcontracted workers face eroding wages and a lack of
workplace protections. According to the author's office, the
increased use of such third-party labor suppliers results in
workers having to work harder for less pay while insulating
the company in charge from responsibility for what is done to
those workers - which then drives down wages and makes
accountability difficult.
AB 1897 would hold client companies liable for serious
violations of workers' rights, such as failure to pay wages,
necessary contributions, and workers compensation, committed
by their own labor suppliers, to workers on their premises.
According to the author's office, AB 1897 will incentivize the
use of responsible contractors, rather than a race to the
bottom by protecting vulnerable temporary workers as well as
businesses that follow the law and don't profit from cheating
workers.
6. Double Referral :
This bill has been double referred and, if approved by this
committee, it will be sent to the Senate Judiciary Committee
for a hearing.
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7. Proponent Arguments :
This bill is co-sponsored by the California Labor Federation,
AFL-CIO, the California Teamsters Public Affairs Council, and
the United Food and Commercial Workers Union.
Proponents argue that across the economy, companies are
turning to labor contractors to supply workers rather than
hire directly - thereby creating a workforce with no stability
or security. Proponents contend that this can result in
contractors competing to provide the cheapest labor and being
squeezed by the company to cut corners on worker protections.
Proponents argue that in this system, when workers are injured
or cheated out of wages, keeping the employer accountable can
be difficult when the company and contractor 'point fingers at
one another.'
Further, proponents bring attention to a recent report from
ProPublica which found that in California, temporary workers
face a 50% greater risk of getting injured on the job than
permanent employees. Proponents such as the California Rural
Legal Assistance Foundation specifically note that despite the
protections and regulations for farm labor contractors there
are still widespread labor law abuses ranging from wage theft,
sexual harassment, retaliation, and health and safety abuses.
Proponents argue that despite the passage of recent
legislation such as the Financially Responsible Contractors
Act (2003) and the expansion of the definition of employer by
the California Supreme Court in Martinez v. Combs (2010),
efforts to hold the users of labor contractors jointly liable
for their labor law violations remains a fact intensive,
expensive, case by case exercise that takes years to
successfully litigate against a single employer.. Proponents
maintain that this process is costly, slow, and difficult to
navigate for most workers - requiring litigation rather than
providing a simple and straight forward rule.
Lastly, proponents contend that AB 1897 will hold companies
accountable for serious violations of workers' rights
committed by their own labor suppliers to workers on their
premises. Proponents argue that AB 1897 will incentivize the
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use of responsible labor contractors, rather than a race to
the bottom - offering workers a clear path to accountability
for workplace violations and offering employers a clear path
to compliance.
8. Opponent Arguments :
A coalition of employer groups, including the California
Chamber of Commerce, opposes this bill and argues that it
forces one company to essentially insure the wage and hour
obligations, workers' compensation coverage, and occupational
health and safety duties of a separate employer's employees.
Opponents argue that although recent amendments have exempted
certain businesses, the overwhelming majority of employers in
California will still be unfairly held liable for the wage and
hour violations of another that they could neither control nor
prevent, specifically pertaining to wages, workers'
compensation, as well as health and safety requirements.
Opponents contend that this liability under AB 1897 is
extended to an innocent third party that did not contribute to
the violations, control the working conditions, control the
manner of payment, dictate the employees' schedules, or even
control the work environment.
Opponents bring attention to the two legal theories that could
hold a third party liable for such labor obligations, joint
employer liability and independent contractor
misclassification. Opponents contend that the key factor for
these analyses is that the third party has to exert such
control over the working conditions of the contractor's
employees that essentially the third party acted as the real
employer. Opponents argue that AB 1897 ignores this long
standing common law analysis and imposes liability despite the
lack of any control exerted by the third party.
Further, opponents argue that for industries in which there
has been documented evidence of unlawful contracting practices
and abuse of contracted labor, such as the farm labor,
garment, construction, security guards, janitorial, and
warehouse industries, the legislature has already enacted laws
to address and prevent such abuses. Opponents argue that AB
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Senate Committee on Labor and Industrial Relations
1897 expands liability to all industries and all individuals
who contract for labor or services, despite any evidence that
there is a need beyond the industries already regulated.
9. Prior Legislation :
AB 1855 (Torres), Chapter 813, Statutes of 2012 - applied the
sufficient funds requirement on a labor contract from SB 179
(Alarcon) to warehouse workers
SB 179 (Alarcon), Chapter 908, Statutes of 2003 - requires
that that any person or entity who enters into a labor
contract for construction, farm labor, garment, janitorial, or
security guard services when the person or entity knows or
should know that the contract does not provide funds
sufficient to allow the labor contractor to comply with all
applicable laws or regulations governing the labor or services
to be provided under the contract, is subject to liability and
specified civil penalties.
AB 423(Hertzberg), Chapter 157, Statutes of 2001 - established
specialized enforcement units, additional verification of
valid farm labor contractor licenses, and provided for
enhanced criminal penalties for failure to pay wages.
SUPPORT
California Labor Federation, AFL-CIO (Co-Sponsor)
California Teamsters Public Affairs Council (Co-Sponsor)
United Food & Commercial Workers Western States Council
(Co-Sponsor)
Air Conditioning & Refrigeration Contractors Association
Air Conditioning Sheet Metal Association
Alameda County Labor Council, AFL-CIO
American Federation of State, County and Municipal Employees
Asian American Alliance for Justice - Asian Law Caucus
Asian Americans Advancing Justice - Los Angeles
Asian Americans for Community Involvement
Asian Pacific Islander Justice Coalition of Silicon Valley
California Alliance for Retired Americans
California Conference of Machinists
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Senate Committee on Labor and Industrial Relations
California Conference of the Amalgamated Transit Union
California Employment Lawyers Association
California Faculty Association
California Immigrant Policy Center
California Legislative Conference of the Plumbing, Heating &
Piping Industry
California Nurses Association
California Professional Firefighters
California Rural Legal Assistance Foundation
California School Employees Association
California State Association of Electrical Workers
California State Council of Service Employees
California State Pipe Trades Council
Centro Legal de la Raza
Chinese Progressive Association
CLEAN Carwash Campaign
Community Action Board of Santa Cruz County
Consumer Attorneys of California
Employee Rights Center
Engineers & Scientists, IFPTE Local 20
Equal Rights Advocates
Garment Workers Center
Interfaith Council on Economics and Justice
International Longshore and Warehouse Union, Coast Division
International Longshore and Warehouse Union, Southern California
District Council
Jockeys Guild
Katherine & George Alexander Community Law Center
Koreatown Immigrant Workers Alliance
Legal Aid Society-Employment Law Center
Latinos United for a New America
Los Angeles County Federation of Labor, AFL-CIO
Maintenance Cooperation Trust Fund
Merced-Mariposa Central Labor Council, AFL-CIO
Monterey Bay Central Labor Council, AFL-CIO
Napa Solano Central Labor Council, AFL-CIO
National Association of Social Workers, California Chapter
National Electrical Contractors Association, California Chapters
National Employment Law Project
National Lawyers' Guild Labor & Employment Committee
North Bay Labor Council, AFL-CIO
Northern California Carpenters Regional Council
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Senate Committee on Labor and Industrial Relations
Northern California District Council, ILWU
Professional & Technical Engineers, IFPTE Local 21
San Mateo Central Labor Council, AFL-CIO
SEIU Local 1000
South Bay Labor Council, AFL-CIO
State Building and Construction Trades Council of California
Sunrise Floor Systems LLC
Teamsters Joint Council No. 42
Teamsters Joint Council No. 7
Teamsters Local 137
Teamsters Local 150
Teamsters Local 315
Teamsters Local 350
Teamsters Local 386
Teamsters Local 396
Teamsters Local 431
Teamsters Local 517
Teamsters Local 542
Teamsters Local 63
Teamsters Local 63
Teamsters Local 856
Teamsters Local 890
Teamsters Local 986
UNITE HERE
United Auto Workers, Local 5810
United Farm Workers of America
Utility Workers Union of America, Local 132
Warehouse Workers United
Western States Council of Sheet Metal Workers
Working Partnerships USA
OPPOSITION
Agricultural Council of California
Air Conditioning Trade Association
Associated Builders and Contractors - San Diego Chapter
Associated Builders and Contractors of California
Associated General Contractors
Association of California Healthcare Districts
Building Owners and Managers Association of California
California Ambulance Association
California Apartment Association
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Senate Committee on Labor and Industrial Relations
California Asian Chamber of Commerce
California Association of Winegrape Growers
California Bankers Association
California Business Properties Association
California Cable and Telecommunications Association
California Chamber of Commerce
California Chapter of American Fence Association
California Citrus Mutual
California Coalition on Workers' Compensation
California Communications Association
California Cotton Ginners Association
California Employment Law Council
California Farm Bureau Federation
California Fence Contractors' Association
California Grape and Tree Fruit League
California Grocers Association
California Hospital Association
California Hotel and Lodging Association
California Landscape Contractors Association
California League of Food Processors
California Manufacturers and Technology Association
California Newspaper Publishers Association
California Pool and Spa Association
California Restaurant Association
California Retailers Association
California Trucking Association
Chambers of Commerce Alliance of Ventura and Santa Barbara
Counties
Civil Justice Association of California
Consolidated Communications Inc. (formerly SureWest)
CSAC Excess Insurance Authority
Desert Hot Springs Chamber of Commerce & Visitors Center
El Dorado County Chamber of Commerce
Family Winemakers of California
Flasher Barricade Association
Fullerton Chamber of Commerce
Greater Bakersfield Chamber of Commerce
International Council of Shopping Centers
International Franchise Association
International Warehouse Logistics Association
Marin Builders Association
NAIOP of California, the Commercial Real Estate Development
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Senate Committee on Labor and Industrial Relations
Association
National Federation of Independent Business
Oxnard Chamber of Commerce
Personal Insurance Federation of California
Plumbing-Heating-Cooling Contractors Association of California
Redondo Beach Chamber of Commerce
Rural County Representatives of California
San Diego East County Chamber of Commerce
San Gabriel Valley Economic Partnership
San Gabriel Valley Legislative Coalition of Chambers
San Jose Silicon Valley Chamber of Commerce
Santa Clara Chamber of Commerce and Convention-Visitors Bureau
Simi Valley Chamber of Commerce
South Bay Association of Chambers of Commerce
Southwest California Legislative Council
TechNet
The Chamber of Commerce of the Santa Barbara Region
The United Chambers of Commerce of the San Fernando Valley
Urban Counties Caucus
Visalia Chamber of Commerce
Visalia Chamber of Commerce
Western Agricultural Processors Association
Western Electrical Contractors Association
Western Growers Association
Wine Institute
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Senate Committee on Labor and Industrial Relations