Using temp workers loses some of its appeal

Recently, California enacted a new law applicable to companies using temp workers. Assembly Bill 1897, codified as section 2810.3 of the California Labor Code became effective in 2015. Under the new law a company using temp workers will be liable to the workers supplied by the temp agency for wage and hour violations. Previously, a company using temp workers was only responsible for certain types of claims when it was determined to be a joint employer.

While there are certain exemptions in the bill for specific types of company-worker relationships and certain employers, the new law generally applies to all business that have 25 or more workers (including traditional employees and temp workers) and using six or more temp workers.

The law imposes “civil liability” and “civil legal responsibility” on the “client employer” for the any failure of the “labor contractor” (the temp agency) to comply with wage and hour laws or secure workers’ compensation coverage. The law also prohibits the client employer from shifting responsibility for workplace safety to the temp agency.

The law does not prevent the client employer from having a contract with the temp agency that provides indemnification for the temp agency’s actions regarding workers’ compensation and wage and hour laws.

In light of this law, a company using temp workers should review its contract to ensure that it requires the temp agency to comply with workers’ compensation laws and wage and hours laws and provide indemnification. In fact, a company using temp workers should go beyond just looking at the contract and ask the temp agency to prove that the agency is properly following all wage and hours laws applicable to the temp workers it supplies.

Also, recognize that indemnification is only as strong as the company that is providing the indemnification. Consider requiring the temp agency to have an employment practices liability insurance (EPLI) policy that names the client company as an additional insured. Requiring this in a contract, however, needs to be balanced against the reality that getting an EPLI policy that covers wage and hours claims is becoming very difficult in California.

A more challenging alternative for client employers is to re-evaluate the value of using temporary workers instead of traditional employees in light of these additional risks. As California continues to impose more and more liability on client employers, the value of using temp workers becomes less obvious. For temp agencies, laws like A.B. 1897 alter the risks for their client companies and make it more important than ever to establish and maintain clear compliance with California’s labor laws. Temp agencies that do so will have a strong competitive advantage.