BILL ANALYSIS Ó
SENATE JUDICIARY COMMITTEE
Senator Hannah-Beth Jackson, Chair
2013-2014 Regular Session
AB 1897 (Hernández)
As Amended May 28, 2014
Hearing Date: June 24, 2014
Fiscal: Yes
Urgency: No
TMW
SUBJECT
Labor Contracting: Client Liability
DESCRIPTION
This bill would require a client employer, as defined, to share
with a labor contractor, as defined, all civil legal
responsibility and civil liability for: (1) payment of wages to
workers provided by a labor contractor; (2) failure to report
and pay all required employer contributions, worker
contributions, and personal income tax withholdings as required
by the Unemployment Insurance Code; and (3) failure to secure
valid workers' compensation coverage.
BACKGROUND
In 1999, the Legislature enacted AB 633 (Steinberg, Ch. 554,
Stats. 1999), which makes all garment manufacturers liable for
the guaranteed wages, including civil penalties, of the entity
with whom they have contracted to make garments, and was enacted
to address the large and growing underground economy of
employers who were chronic violators of wage and hour, safety,
and tax laws. At that time, garment employers paid workers with
cash under the table or with checks that bounced, failed to pay
employment taxes, worked their employees long hours without rest
breaks, and avoided paying wage judgments. In addition to
cheating workers out of wages, it was estimated that
California's underground economy supplanted an estimated $60
billion in legal business transactions, and the state's loss of
income taxes alone increased from $2 billion in 1986 to $3
billion in 1993.
(more)
AB 1897 (Hernández)
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Similarly, SB 179 (Alarcón, Ch. 908, Stats. 2003) required 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 1855 (Torres, Ch. 813, Stats. 2012) extended that sufficient
funds requirement on a labor contract to warehouse workers.
More recently, a recent study reported that businesses are
outsourcing work through multi-layered contracting, use of
staffing or temp firms, franchising, misclassifying employees as
independent contractors, and other means. (C. Ruckelshaus, R.
Smith, S. Leberstein, E. Cho, Who's the Boss: Restoring
Accountability for Labor Standards in Outsourced Work (May 2014)
p. 1.) That study found that "the ambiguous legal status of
many workers in contracted jobs is one of the central factors
driving lower wages and poor working conditions in our economy
today.
Median hourly wages for workers in janitorial, fast food, home
care, and food service, all sectors characterized by extensive
contracting and franchising, are $10 or less;
Once outsourced, workers' wages suffer as compared to their
non-contracted peers, ranging from a 7 percent dip in
janitorial wages, to 30 percent in port trucking, to 40
percent in agriculture; food service workers' wages fell by $6
an hour;
These same sectors see routine incidences of wage theft, with
25 percent of workers reporting minimum wage violations, and
more than 70 percent of workers not paid overtime; and
Construction, agriculture, warehouse, fast food, and home care
workers suffer increased job accidents compared with workers
in other sectors." (Id.)
Further, that study reported that "[c]onscientious employers are
harmed, too, as they are unable to compete with lower-bidding
companies reaping the benefits of rock-bottom labor costs.
Local economies and the public lose out when paychecks shrink,
taxpayer-funded benefits subsidize the low wages, and employers
skirt payroll and other workplace insurance payments." (Id. at
pp. 1-2.)
To address these issues, this bill would require a client
employer to share with a labor contractor all civil legal
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responsibility and civil liability for payment of wages to
workers, failure to report and pay all required employer
contributions, worker contributions, and personal income tax
withholdings, and failure to secure valid workers' compensation
coverage.
This bill was heard in the Senate Labor and Industrial Relations
Committee on June 11, 2014, and passed out on a vote of 4-1.
CHANGES TO EXISTING LAW
Existing law provides a framework of labor law enforcement of,
among other things, minimum standards for wages, hours,
conditions of employment, and occupational safety and health by
the Division of Labor Standards Enforcement. (Lab. Code Sec.
200 et seq.) The Employment Development Department administers
the unemployment insurance, and state disability insurance
programs, and requires that employers pay specified employee
payroll taxes. (Unempl. Ins. Code Sec. 301.)
Existing common law provides that 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; 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. (Lab. Code
Secs. 1697.5, 2675.)
Existing law requires a person engaged in garment manufacturing
who contracts with another person for their performance of
garment manufacturing operations to guarantee the payment of the
minimum wage and overtime. (Lab. Code Sec. 2673.1)
Existing law prohibits an entity from entering 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 contractor to comply with all
applicable local, state, and federal laws. (Lab. Code Sec.
2810.)
This bill would require a client employer to share with a labor
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contractor all civil legal responsibility and civil liability
for all of the following: (1) the payment of wages to workers
provided by a labor contractor; (2) the failure to report and
pay all required employer contributions, worker contributions,
and personal income tax withholdings; and (3) the failure to
secure valid workers' compensation coverage.
This bill would prohibit a client employer from shifting any
legal duties to the labor contractor related to workplace health
and safety.
This bill would clarify that these provisions are in addition
to, and supplemental of, any other liability or requirement
established by statute or common law.
This bill would 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.
This bill would require, upon request by a state enforcement
agency or department, a client employer or a labor contractor to
promptly provide to the agency or department any information
required to verify compliance with applicable state laws.
This bill would authorize 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
provisions of this bill.
This bill would make a waiver of these provisions contrary to
public policy, void, and unenforceable.
This bill would clarify that it should 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.
This bill would define "client employer" to mean a business
entity that obtains or is provided workers to perform labor or
services within its usual course of business from a labor
contractor, but would not include business entities with a
workforce of less than 25 workers or the state or any political
subdivision of the state.
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This bill would define "labor contractor" to mean 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, but would not
include: (1) a bona fide nonprofit, community-based organization
that provides services to low-wage workers; (2) a bona fide
labor organization or apprenticeship program; or (3) motion
picture payroll services company.
This bill would define "wages" to include all amounts for labor
performed by employees of every description, whether the amount
is fixed or ascertained by the standard of time, task, piece,
commission basis, or other method of calculation, and all sums
payable to an employee or the state based upon any failure to
pay wages, as provided by law.
This bill would exclude from the definition of "worker" an
employee who is exempt from the payment of an overtime rate of
compensation for executive, administrative, and professional
employees pursuant to wage orders by the Industrial Welfare
Commission.
This bill would define "usual course of business" to mean the
regular and customary work of a business, performed within or
upon the premises or worksite of the client employer.
COMMENT
1. Stated need for the bill
The author writes:
Labor contractors are increasingly recruiting immigrant
workers. In fact, ProPublica has documented the rise of "temp
towns," which are dominated by staffing agencies that prey on
undocumented immigrants. Even the staffing agencies may have
layers of subcontractors who charge workers to find work and
provide transportation.
Not only does the use of a contractor make it harder to hold
the company accountable for the treatment of workers, but it
also interferes with the right to organize. Contract laborers
work for the labor contractor, so at one site, there can be
multiple employers. That results in split bargaining units,
multiple elections, and a constantly divided workforce.
Current law is simply insufficient to protect workers' rights
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in the shadows of the subcontracted economy. Under existing
law, a company can only be held responsible if a worker can
prove joint employer status. This process is costly, slow,
and difficult to navigate for most workers. It requires
litigation, rather than providing a simple and straightforward
rule. It is also easily manipulated by companies that have the
labor contractor provide supervision on site to shield them
from liability.
AB 1897 holds companies accountable for serious violations of
workers' rights, committed by their own labor suppliers, to
workers on their premises. This simple rule will incentivize
the use of responsible contractors, rather than a race to the
bottom. It will protect vulnerable temporary workers, as well
as businesses that follow the law and don't profit from
cheating workers. It offers workers a clear path to
accountability for workplace violations and it offers
employers a clear path to compliance.
2. Sharing civil legal responsibility and civil liability
This bill would require a client employer to share with a labor
contractor all civil legal responsibility and civil liability
for: (1) payment of wages to workers provided by a labor
contractor; (2) failure to report and pay all required employer
contributions, worker contributions, and personal income tax
withholdings as required by the Unemployment Insurance Code; and
(3) failure to secure valid workers' compensation coverage.
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 to each other for responsibility.
A recent California Supreme Court case discussed end-user
liability for employee wages. In Martinez v. Corky N. Combs et
al. (2010) 49 Cal.4th 35, the issue was whether the defendants,
two produce merchants who had contracted with the defendant
farmer (employer of plaintiffs), were liable under the statute
at issue, Labor Code Section 1194, for minimum wages owed to the
employee plaintiffs. The court held that the produce merchants
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were not the plaintiffs' employers under the statute or the
Industrial Welfare Commission's (IWC) wage orders defining the
employment relationship. (Id. at p. 52.) With respect to the
plaintiffs' interpretation of "employ" as defined by the IWC,
the court noted that "[c]ertainly defendants benefitted in the
sense that any purchaser of commodities benefits, however
indirectly, from the labor of the supplier's employees.
However, the concept of a benefit is neither a necessary nor a
sufficient condition for liability under the 'suffer or permit'
standard. Instead, . . . the basis of liability is the
defendant's knowledge of and failure to prevent the work from
occurring." (Id. at pp. 69-70.) Further, the court held that
"[f]or the same reason that defendants benefitted from
plaintiffs' work, so too did the grocery stores that purchased
strawberries from defendants, and the consumers who in turn
purchased strawberries from the grocery stores. Had the IWC
intended to impose a rule capable of creating such potentially
endless chains of liability, one would expect the [Labor
Commission] to have announced it in the plainest terms after
vigorous debate. Yet the concept of downstream benefit as a
sufficient basis for liability appears nowhere in the wage
order's definition of "employ" . . . ." (Id. at p. 70.)
This bill would require joint liability between a labor
contractor and the end-user (client employer) for unpaid wages
and related contributions and withholdings overturning statutory
and common law. In this way, this bill would hold a the
end-user liable for the worker's unpaid wages, contributions,
and withholdings without that party having any control over the
worker's payments or performance of services, having any
knowledge of the worker's presence on the job or that the party
who hired the worker had failed to make wage payments,
contributions, or withholdings, or having contracted with the
employer for the benefit of the worker.
3. Opposition concerns
Opponents of this bill argue that this bill would hold an
innocent business liable for the employment obligations of
another employer, and creating a new standard for joint
liability, when the innocent business has no requisite control
over the employee, completely ignores the long-standing common
law analysis. Further, opponents contend that this bill will
create significant litigation to include any third party that
uses contractors as part of its usual course of business, which
may take years to resolve given the severe burdens on the
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courts. Opponents assert that existing law already places wage
payment requirements on temporary staffing agencies, and several
industries, including farm labor, garment, construction,
security guards, janitorial, and warehouse workers.
In response, proponents note that companies, such as Wal-Mart
and other blue-collar worksites have been increasingly more
reliant on using temporary workers, many of whom are immigrants
or are not well educated. Proponents contend that this has led
to multiple instances of temporary workers being forced to work
overtime or being injured on the job without being fairly
compensated. Proponents assert that this bill will hold the
employer accountable for its employees regardless of whether or
not they were supplied by a third party labor contractor.
Additionally, proponents argue that existing statutory and
common law does not create significant pressure to effect
systematic change in the way other employers utilize labor
contractors, and this bill would be an important contribution to
efforts to protect workers from wage theft, substandard working
conditions and other abuses committed by labor contractors in
the underground industry.
Support : Air Conditioning & Refrigeration Contractors
Association; Air Conditioning Sheet Metal Association; Alameda
County Labor Council, AFL-CIO; American Federation of State,
County and Municipal Employees, AFL-CIO; 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; 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; California Teachers Association; 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;
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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; National Staffing Workers Alliance; North
Bay Labor Council, AFL-CIO; Northern California Carpenters
Regional Council; 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. 7; Teamsters Joint Council No. 42; Teamsters Local
63; 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 856; Teamsters Local 890; Teamsters Local
986; UNITE HERE!; United Auto Workers, Local 5810; United Food &
Commercial Workers Union, Western States Council; United Farm
Workers of America; United Nurses Associations of
California/Union of Health Care Professionals; 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; 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 Cotton Growers Association; California
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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; Custom Logistics &
Delivery Association; 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; Los Angeles Area Chamber of Commerce;
Marin Builders Association; NAIOP of California, the Commercial
Real Estate Development 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; Torrance Area
Chamber of Commerce; Urban Counties Caucus; Visalia Chamber of
Commerce; Visalia Chamber of Commerce; Western Agricultural
Processors Association; Western Electrical Contractors
Association; Western Growers Association; Wine Institute
HISTORY
Source : California Labor Federation, AFL-CIO; California
Teamsters Public Affairs Council; United Food and Commercial
Workers Union
Related Pending Legislation : None Known
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Prior Legislation :
AB 1855 (Torres, Ch. 813, Stats. 2012) See Background.
SB 179 (Alarcón, Ch. 908, Stats. 2003) See Background.
AB 423(Hertzberg, Ch. 157, Stats. 2001) established specialized
enforcement units, additional verification of valid farm labor
contractor licenses, and provided for enhanced criminal
penalties for failure to pay wages.
AB 633 (Steinberg, Ch. 554, Stats. 1999) See Background.
Prior Vote :
Senate Committee on Labor and Industrial Relations (Ayes 4, Noes
1)
Assembly Floor (Ayes 51, Noes 23)
Assembly Committee on Appropriations (Ayes 12, Noes 5)
Assembly Committee on Judiciary (Ayes 5, Noes 2)
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