BILL ANALYSIS Ó SENATE JUDICIARY COMMITTEE Senator Noreen Evans, Chair 2013-2014 Regular Session SB 556 (Corbett) As Amended April 9, 2013 Hearing Date: May 7, 2013 Fiscal: No Urgency: No TW SUBJECT Agency: Ostensible DESCRIPTION This bill would provide that a person or entity, who enters into a contract or agreement for labor or services with a contractor, is liable for any damages caused by the contractor or contractor's employee for work performed under the contract if, at the time of the damage, the contractor or contractor's employee wore a uniform that is substantially similar to the uniform of the person or entity or the contractor or the contractor's employee operated a vehicle that displayed the logo of the person or entity. BACKGROUND A growing trend in California's work force is the use of independent contractors, who contract with another entity to perform services for consumers on behalf of that entity. Most times, when an independent contractor agrees with the entity to perform services, the entity is not responsible for the independent contractor's performance of the work or any resulting damages or injury to a consumer. The contract itself may relieve the entity from all liability for the independent contractor's performance of the work. In the event a consumer is harmed by or during the services performed by the independent contractor, the contracting entity may be found liable to the consumer for the damage or injury through ostensible agency. Ostensible agency is created when an agent (in this case, the independent contractor) represents (more) SB 556 (Corbett) Page 2 of ? another, called the principal (or contracting entity), in dealings with third persons, and the principal intentionally or negligently causes a third party to believe that the agent is authorized to act on the principal's behalf. The principal may be found liable to the consumer if a court finds that the principal had the right to control the manner and means by which the person performing the work (independent contractor) accomplishes the work. At times, the contracting entity may require the independent contractor to wear a uniform or display a logo of the principal so that the consumer receiving the services can identify that the independent contractor has been sent by the principal to perform the services requested by the consumer. This bill, sponsored by the California Firefighters Association and the California Labor Federation, would provide that, in the event the independent contractor is performing services on behalf of the entity, and the independent contractor is wearing a uniform substantially similar to that of the entity or operates a vehicle that displays the entity's logo, the entity would be liable for any injury or damages caused by the independent contractor to the consumer. If this bill is approved by this Committee, it will be referred to the Senate Committee on Labor and Industrial Relations. CHANGES TO EXISTING LAW Existing law provides that an agent is one who represents another, called the principal, in dealings with third persons, and this representation is called agency. (Civ. Code Sec. 2295.) An agency is either actual or ostensible. (Civ. Code Sec. 2298.) Existing law authorizes an agent to do everything necessary or proper and usual, in the ordinary course of business, for effecting the purpose of his agency, and, to make a representation respecting any matter of fact, not including the terms of his authority, but upon which his right to use his authority depends, and the truth of which cannot be determined by the use of reasonable diligence on the part of the person to whom the representation is made. (Civ. Code Sec. 2319.) However, existing law also provides that an authority expressed in general terms, however broad, does not authorize an agent to act in the agent's own name, unless it is the usual course of business to do so or the terms define the scope of the agency. SB 556 (Corbett) Page 3 of ? (Civ. Code Sec. 2322.) Existing law provides that an agent represents his principal for all purposes within the scope of his actual or ostensible authority, and all the rights and liabilities which would accrue to the agent from transactions within such limit, if they had been entered into on his own account, accrue to the principal. (Civ. Code Sec. 2330.) Existing law provides that an agency is actual when the agent is really employed by the principal. (Civ. Code Sec. 2299.) Existing law provides that an ostensible agency is such that the principal intentionally, or by want of ordinary care, causes a third person to believe another to be his agent, who is not really employed by him. (Civ. Code Sec. 2300.) Existing law provides that ostensible authority is such that a principal, intentionally or by want of ordinary care, causes or allows a third person to believe the agent to possess. (Civ. Code Sec. 2317.) Existing law provides that a principal is bound by acts of his agent, under a merely ostensible authority, to those persons only who have in good faith, and without want of ordinary care, incurred a liability or parted with value, upon the faith thereof. (Civ. Code Sec. 2334.) Existing law requires an employer, in all cases, to indemnify his employee for losses caused by the employer's want of ordinary care. (Lab. Code Sec. 2800.) Existing law provides that any contract or agreement, express or implied, made by any employee to waive the above employer indemnification, or any other obligations of the employer, is null and void. (Lab. Code Sec. 2804.) This bill would provide that a person or entity that enters into a contract or agreement for labor or services with a contractor shall be liable for any damages caused by the contractor or the contractor's employee for work performed under the contract if, at the time of the damage, either of the following occurred: the contractor or contractor's employee wore a uniform that is substantially similar to the uniform of the person or entity so as to cause a member of the public to believe that the contractor or contractor's employee was an agent of the person SB 556 (Corbett) Page 4 of ? or entity; or the contractor or contractor's employee operated a vehicle with the logo of the person or entity and the vehicle had an appearance that would cause a member of the public to believe that the contractor or contractor's employee was an agent of the person or entity. COMMENT 1. Stated need for the bill The author writes: Employment in America is evolving from primarily full-time direct hire work to temporary and contingent work. This type of employment has implications for workers' health, wages, and well-being. . . . A contracted arrangement allows user-employers to avoid compliance with labor laws that protect workers, and makes it difficult to enforce remaining protections. In addition, consumers are caught between the "user-employer" [the entity that originates the contract or contracts for outside labor or services (uses temporary or contingent workers)] and their contractors. Effective enforcement of labor laws holds employers accountable for noncompliance with state labor laws and offers incentives for employers to meet minimum employment standards. Regulators inspect workplaces or workers file a complaint. Then regulators investigate and if reported violations are proven, the employer is deemed responsible. The contingent worker model, however, has changed the enforcement equation, creating a different outcome; contractors, the employer of record, are held responsible for violations and damages instead of the user-employer. When non-compliance is supported, a decision against a contractor or subcontractor alone can be ineffectual and is unfair to other parties, if the user-employer played a substantial role in causing non-compliance and damages. In addition, when the user-employer terminates a contractor for whatever reason, workers are left unprotected and without work, for example, when the contractor loses significant income generated from . . . the contract with a user-employer, then goes out of business without paying lost wages or cannot compensate for damages assessed. SB 556 (Corbett) Page 5 of ? This measure focuses on the employer who is most able to prevent abuses and increasingly, is not the employer of record, who remains the entity having the greatest responsibility to do so. In addition, this measure connects the user-employer to the employment conditions they create, irrespective of labor law and employment regimes. 2. Ostensible agency liability of entity for contractor's use of uniform and logo In an employer/employee relationship, the employer may be held vicariously liable to an injured third party for the acts of the employee. On the other hand, an independent contractor is not considered by the entity with whom he or she contracts to provide services to be an employee or agent of the entity, and this lack of employee/agent relationship may be specified in the service contract between the independent contractor and the entity. Accordingly, if an injured third party seeks redress for injuries sustained due to the acts of an independent contractor, the entity would ordinarily not be liable to the third party, unless the third party could prove that the entity and the independent contractor had created an ostensible agency. Under existing law, an agency is ostensible when the principal intentionally, or by want of ordinary care, causes a third party to believe that another person (who is not actually employed by the principal) to be an agent of the principal. (Civ. Code Sec. 2300.) To prove an ostensible agency relationship for the purpose of assigning liability to the principal, an injured third party must show "(1) conduct by the [principal] that would cause a reasonable person to believe there was an agency relationship and (2) reliance on that apparent agency relationship by the plaintiff." (Mejia v. Community Hospital of San Bernardino (2002) 99 Cal.App.4th 1448, 1456-57.) This bill would make a person or entity, who contracts with a contractor for services, liable for the acts of the contractor or contractor's employee, who wears a uniform that is substantially similar to that of the person or entity or who displays the logo of the person or entity on a vehicle. In this way, this bill would effectively remove the need for a plaintiff to prove the two-part Mejia test and would assign vicarious liability to the person or entity if the plaintiff witnessed the contractor wearing a substantially similar uniform or displaying a logo of the entity. As such, this bill would create a definitive liability of the person or entity (as principal) for SB 556 (Corbett) Page 6 of ? third-party injury and damages. The California Labor Federation and California Professional Firefighters, co-sponsors, assert that with steady increases in contingent work, companies are now routinely hiring through third-party intermediaries, such as labor contractors, temporary staffing agencies, and other subcontractors. Further, the sponsors argue that: All of these contingent arrangements separate the company at the top from the workers at the bottom and serve to shield from liability the company that is calling the shots. . . . Subcontracting . . . has implications for consumers and the public. With levels of contracting comes decreased accountability. It can also impact training and supervision for workers. In many cases, consumers do not even know what entity they are actually doing business with, or who is in charge if something goes wrong. In addition, the public knows little about these employment practices and how they may be impacted. When workers enter a home or have access to personal information, the consumer should have the right to know if this is a city employee, a known company employee, a temporary or contracted out employee, or an independent contractor. Not only could that have repercussions in terms of training, supervision, and experience, but it can also change the occupant's liability if that worker is injured on the job. One factor that adds to the confusion is that subcontracted workers are often required to wear the uniform of the contracting entity rather than the company that actually employs them. In some situations, subcontractors drive vehicles with local government logos, so the public believes workers are public employees when they are actually private contractors. The result is that the public may be reassured, but when things go wrong, the city or company is quick to distance themselves from the worker wearing their uniform. As evidence of the problem this bill would address, the sponsors point to a recent case heard by the Court of Appeal, Second Appellate District, Monarrez v. Southern California Auto Club (2012) 211 Cal.App.4th 177, in which a motorist was severely injured by a negligent tow truck driver contracted by the Auto Club to perform towing services. The Auto Club disclaimed responsibility for the plaintiff's injuries because the tow SB 556 (Corbett) Page 7 of ? truck driver was an independent contractor. The Monarrez court disagreed and found that Auto Club maintained all necessary control over the truck driver and was, therefore, vicariously liable because "Auto Club trains the technicians how to do the work, dispatches calls to them, then follows up with inspections and customer surveys to ensure that the technicians are maintaining the proper physical appearance and using Auto Club-approved methods. The work performed by the technicians is Auto Club's regular business, not a one-off job or occasional event. This is full-time employment carrying out Auto Club's business of providing roadside assistance, under the direction of Auto Club. [The tow truck company's] work is wholly integrated into Auto Club's operations and essential to its core business. Failure to conform to Auto Club standards results in termination. If Auto Club recommends the discipline or termination of a technician, failure to follow this recommendation could cause the station's contract to be terminated or calls directed elsewhere." (Id. at p. 191.) Importantly, the court found ostensible agency between the Auto Club and the independent contracting tow truck company because the "uniform of the technician bears only the logo of Auto Club. Their trucks bear the Auto Club logo. The owner of [the tow truck company] testified that when technicians respond to a call they are viewed by motorists as Auto Club, not as an independent contractor. When technicians approach motorists, they identify themselves as Auto Club to instill confidence. At the completion of service, technicians say 'Thank you for choosing the Auto Club,' thereby encouraging members to believe the service was rendered by Auto Club, not an independent contractor." (Id.) The Monarrez decision is currently pending review before the California Supreme Court. In the past, this Committee has raised concerns about bills that interfere with pending litigation. Any such interference could result in a direct financial windfall to a private party, prevent a court from deciding an action based upon the laws in place at the time the cause of action accrued, or create a situation where the Legislative branch is used to circumvent the discretion and independence of the Judicial branch. Because this bill could affect pending litigation, the author has offered an amendment to address this issue. (See Comment 4.) This bill, by automatically creating an ostensible agency between the entity contracting for services and the contractor SB 556 (Corbett) Page 8 of ? when the contractor or contractor's employee bears a substantially similar uniform or logo as to that of the entity, would remove the responsibility of showing the totality of the entity's control over the contractor required to be proven by the injured plaintiff. The sponsors argue that this bill "will protect consumers and workers by creating accountability in situations where companies or local agencies subcontract out work but require contract employees to wear their uniforms. Holding companies responsible when subcontracted workers appear to be company employees is a basic consumer protection. It will also encourage responsible contracting practices." Because these entities are holding their independent contractors out to the public as representatives of the entity, it is arguably appropriate to create ostensible agency in these situations. Staff notes that this bill could create liability on the part of the contracting person or entity if the contractor or contractor's employee wears a substantially similar uniform or displays a logo of the person or entity, regardless of whether the person or entity has authorized or required the contractor or contractor's employee to do so. As such, this bill could create liability of the person or entity, even though the person or entity is unaware that the contractor is holding himself or herself out to the public as being associated with the person or entity through the use of a similar uniform or logo. In order to clarify that liability on the part of the person or entity should only shift away from the contractor if the person or entity has authorized or required the use of the uniform or logo, the author has accepted amendments to address this issue. (See Comment 4.) It is important to note that, in situations where one entity contracts with another, who in turn contracts with another, who ultimately performs the services for the original entity, this bill would not create liability on the part of the original entity, whose uniform or logo may be displayed. For example, a hotel contracts with a cleaning service, which contracts with a temp agency, which employs housekeeping workers. The worker provides cleaning services for the hotel, but since the hotel is not a party to any contract directly with the worker and the worker is not wearing the uniform of the temp agency or cleaning service, a guest, who is injured by the acts of the worker, potentially would not be able to seek liability from the worker, the temp agency, or the cleaning service (the parties covered in this bill) because the worker is not wearing a uniform substantially similar to that of either the temp agency or the SB 556 (Corbett) Page 9 of ? cleaning service. Rather, the worker is wearing a uniform of the hotel. Yet, the hotel is not a party to the contract covered by this bill. To provide better protection for damage and injury to the consumer and appropriately assign liability to the proper party as intended by this bill, the author may wish to amend this bill to provide for liability on the part of the entity ultimately receiving the services of the worker. 3. Indemnity clauses in service contracts Existing law requires an employer to indemnify an employee for losses caused by the employer's want of ordinary care. (Lab. Code Sec. 2800.) Existing law provides that any contract or agreement, express or implied, made by any employee to waive this indemnification, or any other employer obligation under the Labor Code, is null and void. (Lab. Code Sec. 2804.) This bill would add a new employer obligation, and, thus, a new obligation the employer could not require the employee to waive. Although existing law voids contract provisions that waive negligence indemnification by the employer, the author may wish to amend this bill to provide a concise prohibition on indemnity waivers in employment contracts for the new employee immunity provided in this bill. 4. Author's amendments In order to appropriately conform the liability provided in this bill to other immunity exceptions, as well as to address the issue of appropriate entity liability for the use of the uniform and logo and the potential impact of this bill on pending litigation, the author has accepted the following amendments, to be taken in the Senate Committee on Labor and Industrial Relations: Author's amendments : 1. On page 1, in line 3, delete "A" and insert: "Except for damage or injury resulting from gross negligence or a willful act, a" 2. On page 2, in line 3, after "damage" insert "or injury" 3. On page 2, in line 4, delete "wore" and insert: "was authorized or required by the individual or entity to wear" 4. On page 2, in line 9, delete "with" and insert: "that was authorized or required by the individual or entity to display" 5. On page 2, between lines 12 and 13, insert: "(c) This section shall only apply to contracts entered into on or SB 556 (Corbett) Page 10 of ? after January 1, 2014." 5. Opposition concerns A coalition of business groups are opposed to this bill and assert that the bill would undermine the legal significance of the independent contractor relationship and impose liability against the contracting entity for damages caused by the contractor or the contractor's employee, solely on the basis that the contractor or its employee bore a uniform that was substantially similar to that of the contracting entity or drove a vehicle with the contracting entity's logo on it. The opposition argues that the Employment Development Department, Franchise Tax Board, and Division of Industrial Relations each have tests with which to determine the proper classification of an independent contractor for purposes of the liability of a contracting entity for the independent contractor's wages, taxes, and insurance. The opposition argues that the contract arrangement between the independent contractor and contracting business each benefit from the contractual arrangement. The independent contractor is able to control his or her profits, losses, and schedule, while the business manages its costs. Furthermore, the opposition argues that "[a]side from the tort liability for the negligent acts of the independent contractor as an agent of the entity, the liability for any other willful conduct or labor violations of the independent contractor with respect to his/her employees, is borne by the independent contractor (who employs the individuals), not the contracting entity. . . . To our knowledge, it is unprecedented to extend liability for wage and hour violations or intentional conduct to a third party solely on the basis of appearances. Rather, . . .the main inquiry is whether that third party exerted sufficient control over the duties, performance, and conduct of the contracting party to justify extension of liability." The opposition also argues that the placement of the bill language in the Labor Code, in addition to implicating contracting entity liability for wages, penalties, statutory fines, and attorney's fees, would also trigger the Private Attorney General Act, which allows an individual to bring a representative action and would expand the threat of frivolous litigation against any entity that utilizes independent contractors. The opposition asserts that "there is no evidence that any member of the public is confused, harmed, or damaged in any way SB 556 (Corbett) Page 11 of ? based upon a specific belief that the independent contractor is an employee of the company[, and] no proof that a company has refused to stand behind the services provided or resolve a customer complaint on the basis that the individual performing the services was an independent contractor versus an employee." Support : California Conference Board of the Amalgamated Transit Union; California Conference of Machinists; California Teamsters Public Affairs Council; Consumer Federation of California; Engineers and Scientists of California; International Longshore & Warehouse Union; Professional & Technical Engineers, Local 21; UNITE HERE!; United Food and Commercial Workers Union, Western States Council; Utility Workers Union of America, Local 132 Opposition : Associated General Contractors; Building Owners and Managers Association of California; California Ambulance Association; California Business Properties Association; California Chamber of Commerce; California Hospital Association; California Trucking Association; International Council of Shopping Centers; Messenger Courier Association of America; NAIOP of California, the Commercial Real Estate Development Association; National Federation of Independent Business; Western Electrical Contractors Association HISTORY Source : California Labor Federation; California Professional Firefighters Related Pending Legislation : None Known Prior Legislation : AB 2389 (Lowenthal, 2012) would have prohibited the use by a contractor, who provides services on behalf of a contracting entity in a residence or place of lodging, of the name or logo of the contracting entity on a uniform or vehicle unless specified conditions were satisfied. AB 2389 was vetoed by Governor Brown. **************