Labor Contractor Liability (AB 1897) – Fact Sheet
AB 1897 is a sweeping new law that will increase the liability of employers who contract for labor. The purpose of the law is to hold companies accountable for wage-and-hour violations of third party providers of workers when those third party providers provide workers to a "client employer."
Who is covered by AB 1897?
- Any "client employer," which is defined as a business entity with 25 or more workers, at least six of whom are provided by one or more labor contractors to perform labor within the entity's usual course of business.
- AB 1897 will apply to agricultural employers who use farm labor contractors, farm management companies, vineyard service companies or other labor contractors to supply workers.
Some types of businesses are excluded from the definition of "client employer:"
- Business entity with fewer than 25 workers (including those hired directly and those obtained from or provided by any labor contractor) or that has five (5) or fewer workers from a labor contractor or various labor contractors at any given time.
- Motor carriers of property that contracts with or engages another motor carrier of property to provide transportation services.
The following types of businesses are specifically excluded from the definition of “labor contractor” and, therefore, the provisions of the bill will not be triggered if they provide workers to a business entity:
- A bona fide nonprofit community based organization that provides services to workers;
- A bona fide labor organization or apprenticeship program or hiring hall operated pursuant to a collective bargaining agreement.
- “Worker” does not include an employee who is properly classified as exempt from the payment of overtime pursuant to the administrative, executive or professional exemption in the Industrial Welfare Commission Wage Orders.
What Does AB 1897 Do?
- Imposes civil legal responsibility and liability on a client employer for payment of wages or failure to secure workers’ compensation coverage by a labor contractor for workers supplied by the labor contractor to the client employer.
- A client employer can contract for indemnification from the labor contractor for the labor contractor’s failure to pay wages or secure workers’ compensation coverage.
- A client employer cannot shift any legal duties or liabilities under workplace safety laws to the labor contractor.
- Requires a client employer or labor contractor to provide to any state enforcement agency or department any information within its possession, custody or control to confirm compliance with applicable state laws.
How Will AB 1897 Work?
- A labor contractor’s worker who believes he/she has not been properly paid or that there is a failure to secure workers’ compensation coverage may pursue an administrative claim or civil action against the client employer, labor contractor or both;
- If the worker pursues a civil action, the worker or representative must provide notice to the client employer of the alleged violation(s) at least 30 days before filing the civil action. A civil action is not just limited to a single-plaintiff action, but can include a class action or representative action under the Private Attorneys General Act (PAGA). If the worker pursues an administrative claim, no prior notice to the client employer is required.
- To prevail in an administrative or civil action against the client employer for the labor contractor’s alleged violations, the worker will need to prove:
- That he/she was not properly compensated or provided with workers’ compensation coverage;
- That these violations occurred while the worker was working pursuant to a contract for labor between the client employer and labor contractor; and,
- The contract was for work within the “usual course of business” of the client employer, meaning the work was regular and customary for the client employer and performed within or upon the premises of the worksite of the client employer.
Complying with AB 1897
Employers who may find themselves securing labor from 3rd party sources will want to determine what efforts may be made to limit the liability exposure for a labor contractor’s wage-and-hour violations or failure to secure workers’ compensation coverage.
Additionally, employers contracting for workers from 3rd party contractors may wish to consider the following:
- Review existing contracts for labor or services to determine what contracts may fall within the scope of “usual course of business.” For those contracts that qualify, contact those contractors to obtain assurances of their labor and employment compliance.
- Consider including legal protections for wage-and-hour violations and workers’ compensation coverage, including duty to defend and/or indemnification provisions, in new and existing contracts.
- Limit reliance and use of contracted labor or services and determine internally where efficiencies can be made with regard to workload or hiring of additional employees.