BILL ANALYSIS                                                                                                                                                                                                    Ó






                 Senate Committee on Labor and Industrial Relations
                                 Ted W. Lieu, Chair

          Date of Hearing: May 8, 2013                 2013-2014 Regular  
          Session                              
          Consultant: Alma Perez                       Fiscal:No
                                                       Urgency: No
          
                                   Bill No: SB 556
                                   Author: Corbett
                        As Introduced/Amended: April 9, 2013
          

                                       SUBJECT
          
                                 Agency: ostensible 


                                     KEY ISSUES

          Should a person or entity that enters into a contract for labor  
          or services with a contractor be liable for any damages caused  
          by that contractor or his/her employees? 

          Should the person or entity contracting out services be held  
          liable if the contractor or his/her employee wears a uniform or  
          operates a vehicle that is substantially similar to those used  
          by the hiring company - so as to cause a member of the public to  
          believe that the employee works for the hiring entity? 


                                      ANALYSIS
          
           Existing law  provides numerous comprehensive requirements,  
          rights, and remedies relating to the employer-employee  
          relationship, including, but not limited to, wages and other  
          compensation, hours, workers' compensation, labor code violation  
          actions, employment contracts, and standards for working  
          conditions. 

           Existing law  establishes the following definitions:

                 "Employee" means every person in the service of an  
               employer under any appointment or contract of hire or  
               apprenticeship, express or implied, oral or written,  
               whether lawfully or unlawfully employed, as specified.   









               (Labor Code  §3351) But excludes specified individuals such  
               as someone who is employed by his or her parent, spouse or  
               child. (Labor Code  §3352)

                  "Independent contractor" means any person who renders  
               service for a specified recompense for a specified result,  
               under the control of his principal as to the result of his  
               work only and not as to the means by which such result is  
               accomplished. 
               (Labor code §3353)

                 The contract of employment is a contract by which one,  
               who is called the employer, engages another, who is called  
               the employee, to do something for the benefit of the  
               employer or a third person.  (Labor Code §2750)

           Existing law  , under the Business and Professions Code, specifies  
          that: 

             1)   No person shall state, in an advertisement that he is a  
               producer, manufacturer, processor, wholesaler, or importer,  
               or that he owns or controls a factory or other source of  
               supply goods when such is not the fact.  No person shall in  
               any other manner misrepresent the character, extent,  
               volume, or type of his/her business.  (BPC §17505)

             2)   It is unlawful for any person doing business in  
               California and advertising to consumers to make any false  
               or misleading advertising claims.  Includes claims that  
               purport to be based on factual, objective, or clinical  
               evidence; compare the product's effectiveness or safety to  
               that of other brands; or, purport to be based on any fact.   
               (BPC § 17508)

           Existing law  authorizes an employer to prescribe the weight,  
          color, quality, texture, style, form and make of uniforms  
          required to be worn by his or her employees.  (Labor Code §452)
           

          This Bill  would provide that a person or entity that enters into  
          a contract or agreement for labor or services with a contractor  
          Hearing Date:  May 8, 2013                               SB 556  
          Consultant: Alma Perez                                   Page 2

          Senate Committee on Labor and Industrial Relations 
          









          is liable for any damages caused by that contractor or his/her  
          employee for work performed under the contract if certain  
          circumstances exist that would cause a member of the public to  
          believe that the contractor or his/her employee was an agent of  
          the person or entity. 

          Specifically, a person or entity that enters into a contract for  
          labor or services would be held liable if either of the  
          following occurred:

             1)   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 or entity. 

             2)   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.



                                      COMMENTS

          1.  Background on Independent Contracting  :  

             Under existing law, a contract of employment is a contract by  
            which one, who is called the employer, engages another, who is  
            called the employee, to do something for the benefit of the  
            employer or a third person.  Existing law and regulations set  
            forth the conditions under which a person may be classified as  
            an independent contractor, and thus not subject to many wage,  
            overtime, working conditions, and various other labor  
            standards. The Employment Development Department (EDD), the  
            Franchise Tax Board, and the federal government are the  
            primary entities that have established criteria for making a  
            determination as to whether a person may be classified as an  
            independent contractor. EDD has developed a guide, worksheets,  
            and forms to assist businesses in determining whether a worker  
          Hearing Date:  May 8, 2013                               SB 556  
          Consultant: Alma Perez                                   Page 3

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            is an employee or independent contractor. 

            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:  
            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."

          2.  Need for this bill?

             Over the years, committee staff has been advised by  
            stakeholders that misclassification of employees as  
            independent contractors is an on-going problem.  According to  
            the National Employment Law Project (NELP), state-level task  
            forces, commissions and research teams have been using agency  
            audits along with unemployment insurance and workers'  
            compensation data to document the scope of independent  
            contractor misclassification.  According to NELP, these state  
            reports show that 10 to 30% of employers, or even more,  
            misclassify workers, costing the state and federal governments  
          Hearing Date:  May 8, 2013                               SB 556  
          Consultant: Alma Perez                                   Page 4

          Senate Committee on Labor and Industrial Relations 
          









            billions in lost revenues annually.  (Independent Contractor  
            Misclassification Imposes Huge Costs on Workers and Federal  
            and State Treasuries, NELP 2010) 

            This bill attempts to address one aspect of subcontracting and  
            the misclassifying of workers by focusing on the liability of  
            a person or entity that enters into a contract for labor or  
            services.  Specifically, the bill would provide that a person  
            or entity that enters into a contract for labor or services  
            with a contractor is liable for any damages caused by that  
            contractor or his/her employee for work performed under the  
            contract - if certain circumstances exist that would cause a  
            member of the public to believe that the contractor or his/her  
            employee was an agent of the person or entity. 

          3.  Proponent Arguments  :
            
            According to the author and proponents, companies are  
            routinely hiring through third party intermediaries, such as  
            labor contractors or temporary staffing agencies.   
            Arrangements that they argue, separate the company at the top  
            from the workers at the bottom and shielding from liability  
            the company that is calling the shots. They argue that some  
            workers are not even told who their real employer is; giving  
            them fewer tools to ensure their rights are not violated. For  
            example, hotel workers are sometimes hired by the hotel but  
            paid by a subcontractor who is the employer of record. 

            Proponents argue that subcontracting also has implications for  
            consumers and the public because many times consumers don't  
            even know what entity they are actually doing business with,  
            or who is in charge if something goes wrong. In addition, they  
            argue that 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. 

            Additionally, they argue that 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  
          Hearing Date:  May 8, 2013                               SB 556  
          Consultant: Alma Perez                                   Page 5

          Senate Committee on Labor and Industrial Relations 
          









            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. Proponents cite a recent case in  
            which a motorist was severely injured by the negligence of a  
            tow truck driver. [Monarrez v. Southern California Auto Club,  
            211 Cal.App.4th 701 (2012)] The motorist sued Auto Club and  
            Auto Club responded that they had no liability because the tow  
            truck driver was an independent contractor. The Court of  
            Appeals disagreed, noting that the driver wore the Auto Club  
            uniform and was acting as an agent of the company.

            Overall, proponents argue that the bill would 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. They  
            believe that holding companies responsible when subcontracted  
            workers appear to be company employees is a basic consumer  
            protection that will also encourage responsible contracting  
            practices.

          4.  Opponent Arguments  :

            None received. 

          5.  Double Referral  :

            This bill has been double referred. It was previously heard  
            and passed by the Senate Judiciary Committee.

          6.  Amendments taken in prior Committee  :

            When this bill was heard by the Senate Judiciary Committee on  
            May 7th, the author agreed to take the following amendments.   
            Due to the short turn around referral of the bill for the  
            hearing before us, should the bill pass, the amendments will  
            be taken in this Committee. 

               2810.7.  A  Except for damage or injury resulting from gross  
               negligence or a willful act, a person or entity that enters  
               into a contract or agreement for labor or services with a  
          Hearing Date:  May 8, 2013                               SB 556  
          Consultant: Alma Perez                                   Page 6

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               contractor shall be liable for any damages or injury 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:

               (a) The contractor or contractor's employee   wore  was  
               authorized or required by the individual or entity to wear  
               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 or entity.
               (b) The contractor or contractor's employee operated a  
               vehicle  with  that was authorized or required by the  
               individual or entity to display 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.
               (c) This section shall only apply to contracts entered into  
               on or after January 1, 2014.
          
          7.  Prior Legislation  :

            AB 2389 (B. Lowenthal) of 2012: Vetoed by the Governor 
            AB 2389 would have prohibit a contractor that provides  
            services that require entering the residence or place of  
            lodging of a member of the public from utilizing a uniform  
            that bears the name or logo of the contracting entity, unless  
            each uniform meets certain disclosure requirements.  Among  
            these, the bill would have required uniforms and vehicles to  
            clearly, conspicuously, and legibly state the contractor's  
            name and logo.  The bill was vetoed by Governor Brown and in  
            his veto message, he stated the following: 

               "This is a bill that ultimately is about the growing  
               practice of subcontracting
               in the service industry. I agree that this is a topic that  
               requires greater scrutiny -
               and more detailed information.  It is not clear to me that  
               requiring logos on 
               uniforms and vehicles solves any problems, but it may spawn  
               confusion and 
          Hearing Date:  May 8, 2013                               SB 556  
          Consultant: Alma Perez                                   Page 7

          Senate Committee on Labor and Industrial Relations 
          









               some costs. I think we need to know more before prescribing  
               practices 
               such as those suggested by this bill."



                                       SUPPORT
          
          California Labor Federation - Co-Sponsor 
          California Professional Firefighters - Co-Sponsor 
          Consumer Federation of California - Co-Sponsor 
          California Conference Board of the Amalgamated Transit Union
          California Conference of Machinists
          California Teamsters Public Affairs Council  
          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
          
          None received
















          Hearing Date:  May 8, 2013                               SB 556  
          Consultant: Alma Perez                                   Page 8

          Senate Committee on Labor and Industrial Relations