BILL ANALYSIS Ó
Senate Appropriations Committee Fiscal Summary
Senator Kevin de León, Chair
AB 1897 (R. Hernandez) - Labor Contracting: Client Liability
Amended: July 1, 2014 Policy Vote: L&IR 4-1 Judiciary
5-2
Urgency: No Mandate: No
Hearing Date: August 4, 2014
Consultant: Robert Ingenito
This bill meets the criteria for referral to the Suspense File.
Bill Summary: AB 1897 would require client employers that obtain
workers from third party labor contractors to share liability
for specified labor violations, including failure to pay wages
and workers' compensation.
Fiscal Impact: The bill would authorize (1) both the Labor
Commissioner and Division of Occupational Safety with the
Department of Industrial Relations (DIR), and (2) the Employment
Development Department (EDD) to adopt regulations and rules of
practice to administer and enforce the provisions of the bill.
Consequently, the bill would result in a cost pressure to each
department. DIR estimates one-time expenses of $250,000 (special
fund), while EDD's costs could total up to $150,000 (General
Fund).
Background: In recent years, some workers and worker advocates
have noticed an increase in the number of employers who are
moving away from a traditional employment model towards a
business model that utilizes "subcontracted" or "contingent"
workers. In June 2014, the U.S. Bureau of Labor Statistics
reported that the nation has 2.9 million temporary employees.
In a traditional employment relationship, an employer directly
hires its own workers, pays their wages and provides their
benefits, and controls their day-to-day work. However, a
variety of other employment models have developed over the
years. Numerous terms are used to describe these alternative
types of work arrangements: contingent work, nonstandard work,
contractual work, seasonal work, freelance work, "just-in-time"
or "temp employment," or "permatemps."
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Contingent work can take several forms and is prominent in many
industries. The garment industry for example has been reliant on
subcontracting for years to manufacture, sew and press garments.
The agricultural is another historical example of subcontracting
work as farm labor contractors are used to hire agricultural
workers to harvest and perform work on farms. However,
contingent or temporary work has expanded into other sectors
from professional occupations like nursing, accounting, and
computer programming to warehouse work in transportation and
material moving, housekeeping and landscaping, and
manufacturing.
Proposed Law: This bill would establish specified liability for
client employers that obtain workers from third-party labor
contractors. Specifically, the bill would, among other things,
do the following:
Define "client employer" as a business entity that
obtains or is provided workers to perform labor or services
within its usual course of business from a labor
contractor. This definition does not include a governmental
employer, a business entity with less than 25 workers,
including those hired directly by the client employer and
those obtained or provided from a labor contractor, and
five or fewer workers supplied by a labor contractor at any
given time.
Define "labor contractor" as an individual or entity
that supplies, either with or without a contract, a client
employer with workers to perform labor or services within
the client employer's usual course of business. This does
not include the following:
o A bona fide nonprofit, community-based
organization that provides services to low-wage
workers.
o A bona fide labor organization or
apprenticeship program
o A motion picture payroll services company.
Clarify that worker does not include an employee who is
exempt from the payment of an overtime rate of compensation
for executive, administrative, and professional employees.
Define "usual course of business" as the regular and
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customary work of a business, performed within or upon the
premises or worksite of the client employer.
State that a client employer shall share with a labor
contractor all civil legal responsibility and civil
liability for all the following:
o The payment of wages to workers provided by a
labor contractor
o The obligation to provide a safe work
environment, as specified.
o Failure to secure valid workers' compensation
coverage.
Specify that at least 30 days prior to filing a claim
against a client employer for violations covered by this
bill, a worker or his or her representative shall notify
the client employer of violations.
Specify that neither the client employer nor the labor
contractor may take any adverse action against any worker
for providing notification of violations or filing a claim.
Specify that this bill does not prohibit a client
employer from establishing, exercising, or enforcing by
contract any otherwise lawful remedies against a labor
contractor for liability created by acts of a labor
contractor, and vice versa.
Provide that, upon request by a state enforcement agency
or department, a client employer or a labor contractor
shall promptly provide to the agency or department any
information required to verify compliance with applicable
state laws.
Authorize the Labor Commissioner, the Division of
Occupational Safety and Health, and the Employment
Development Department to adopt regulations and rules of
practice and procedure necessary to administer and enforce
the provision of this bill.
Make a waiver of this section contrary to public policy,
and is void and unenforceable.
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Clarify that this section shall not be interpreted to
impose individual liability on a homeowner or the owner of
a home based business for labor and services received at
the home or to impose liability on a client employer for
the use of a bona fide independent contractor.
Related Legislation:
AB 1855 (Torres), Chapter 813, Statutes of 2012 -
applied the sufficient funds requirement on a labor
contract from SB 179 (Alarcon) to warehouse workers.
SB 179 (Alarcon), Chapter 908, Statutes of 2003 -
requires that that any person or entity who enters into a
labor contract for construction, farm labor, garment,
janitorial, or security guard services when the person or
entity knows or should know that the contract does not
provide funds sufficient to allow the labor contractor to
comply with all applicable laws or regulations governing
the labor or services to be provided under the contract, is
subject to liability and specified civil penalties.
AB 423 (Hertzberg), Chapter 157, Statutes of 2001 -
established specialized enforcement units, additional
verification of valid farm labor contractor licenses, and
provided for enhanced criminal penalties for failure to pay
wages.
Staff Comments: The Legislature has previously enacted
legislation designed to address and prevent abuses in certain
industries that have had documented evidence of unlawful
contracting practices and abuses, including farm, garment, and
janitorial labor.