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
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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.
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(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
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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.
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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
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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
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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
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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
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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
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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
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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.
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