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
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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
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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
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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
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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
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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 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
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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