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 Senate Committee on Labor and Industrial Relations 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.AExcept 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 Senate Committee on Labor and Industrial Relations 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 employeeworewas 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 vehiclewiththat 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