If you thought our existing labor laws in 2014 were tough as it can be, you might now change your opinion, because it ain't going any easier for an employer. Below is the summary of some most important changes the year 2015 brought in, mainly the scary new "client-employer" rule. Observers typically point that some clients are exempt, but I am confident to say to the contrary. Unless you are a governmental entity, no one is exempt. Sorry.
"Client-Employers" - additional protections for sub-contractors vs. those who hire contractors.
Review the new Labor Code Section 2810.3, to amuse yourself for a new level of exposure and liability for, well, basically all of us. Introducing, a "client employer." It is someone who hires an independent contractor, and, before, would not be much concerned of what happens down the chain of command. Now, the hiring client is part-responsible to the contractor's own employees, to make sure that their immediate employer (the contractor) has enough funds to cover their wages and worker's compensation insurance.
I though I was dreaming when I read it. But here is the direct quote from the AB 1897 (my emphasis on "all"):
"This bill would require a client employer, as defined, to share with a laborcontractor all legal responsibility and liability for the payment of wages, the failure to report and pay all required employer contributions, worker contributions, and personal income tax withholdings, and the failure to obtain valid workers' compensation coverage."
It sounds to me as running very contrary to the existing rule of the necessity to have an underlying employment relationship with the aggrieved party, but here we have it.
Now, it's easy to say, but think of consequent complications, for instance, what about a failure "to report," to which a newly minted "client employer" shares "all liability"--will that now mean all penalties and (often) attached-to attorney's fees? Sounds like it.
My immediate thought on this is to treat it similarly to scenario happening in real property, when your co-owner, subsidiary, or tenant, becomes incompetent to maintain the property safe, or, when such person hires a contractor and fails to pay--regularly demand from your immediate contractor proofs of competent and full compliance, so that you can at least make informed decisions (if contractor's compliance fails, you can cut the ties and terminate a contract). There is a challenge to read this into pre-existing contracts, but all new contracts have to have a clause to that effect. It remains to be seen if courts will hold this to a strict liability standard for the "client-employers," but the strength of the language suggests it as a strong possibility.
Who is exempt? Except for government*, no one. It covers a "business entity, regardless of its form." Lab. C § 2810.3(a)(A). It appears that not every client is an employer-client. There are exceptions stated in Lab. C § 2810.3(a)(1)(B), but their coverage (mostly lack of it) is revealed in definitions. The cumulative result leaves no one out.
One exception deceptively looks pretty straightforward, "A business entity with five or fewer workers supplied by a labor contractor or labor contractors to the client employer at any given time." [Lab. C § 2810.3(a)(1)(B)(ii)]
Well, a "worker" term is defined more or less clearly: worker "does not include an employee who is exempt
from the payment of an overtime rate of compensation for executive,
administrative, and professional employees pursuant to wage orders by
the Industrial Welfare Commission described in Section 515." [Lab. C § 2810.3(a)(5)]. I read it as everyone else would be a worker. He can be an employee. Can he be an independent contractor? Possibly, just not an expressly exempt employee. (An independent contractor may be an exempt employee in his own business)
What control a client has to limit how many "workers" her contractor has, and, assuming it can be limited for future contracts** [it is not clear if we can so limit], how it can be applied to the already-existing contracting relationships, how much of a controlling and reporting duty we can impose on contractors to keep the client informed about the number of subs, and, what to do with seasonal jobs? Work Orders have different applications on various industries and thus would cover those differences, but this is a Labor Code provision, which at least for now is supposed to apply universally.
Another exception is under Lab. C § 2810.3(a)(1)(B)(i), it is for "a workforce of less than 25 workers,
including those hired directly by the client employer and those obtained
from, or provided by, any labor contractor." Not only it has the same dangers of the above, it has a cumulative effect, because the headcount here is across all levels: a client has its own X number of employees, plus Y number of contractors have their own Z1, Z2, Z3 numbers of "workers." Say this cumulative body of people is at 24, and one contractor, or client, hires a single person for a single task, a task itself excluded from Labor Code provisions. If this extra person can be claimed as an employee (say, under "suffer to work" ** wide standard), the above whole universe of contractors' workers and direct employees/workers of the client will lose the exemption. There is a narrow exception from this scenario, whereas hiring of such extra person has to be within the "usual course of business," but as shown below, it is a very, very, narrow escape.
How about time limits, does the liability under 2810.3 cut off at any time? Unclear. Which way does the curve-out "at any given time" applies? Is it to exclude all who, at any given time, has lesser than six workers? Employers might wish for that one, but this reading would eliminate most of the entities from coverage, and I don't think this was the legislative intent.
Geographical limits? This looks strange in today's economy, where a lot of contracting and subcontracting happens online. But the statute provides this definition: ""Usual course of business" means the regular
and customary work of a business, performed within or upon the premises
or worksite of the client employer." Lab. C § 2810.3(a)(6). If your company's usual course of business is on the Internet, consider it as your usual worksite. Or, if your business is all brick-and-mortar, but your customary way of getting help or purchasing goods comes from online, if you hire someone on taskrabbit, elance, or buy goods from a manufacturer over easy--any of these may (a) expose your total headcount and (b) hold you to this new duty of care. Scary! And where do we cut the requirements, for, say, a Spanish contractor hiring an Australian coder to help you in California with a service task? Whose labor law we will apply for the minimum wage and worker's compensation? Technically now, all these chain members are "workers" for a Californian client...
Where the chain of liability cuts? It seems nowhere. A sub-contractor of a sub-contractor of a contractor or an client-employer is still a viable chain, especially if strict liability standard will be applied. Unsure? Consider a recent decision in Castaneda v. Ensign Group, 229 Cal.App.4th 1015 (2014), for the rule that a parent company can be liable for labor-related liability of its subsidiary or "cluster" company.
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There is nothing as significant as the new client-employer law, measuring on the consequences, but another important new requirement is the Mandatory Paid Sick Leave, now for all employers.
The San Francisco ordinance already had a mandatory paid sick leave provision, but now this is a statewide rule, and, it does not have the exclusions the SF ordinance had.
See new Labor Code Sections 245 et seq., for the "Healthy Workplaces, Healthy Families Act of 2014"
There are only four exclusions for an "employee," and no such thing as an exclusion for an employer just because that employer has lesser than X number of employees. Sections 245.5 and 246 specify the new rules of the game, note that only 30 days is all it takes to make an employee eligible.
Section 247 demands you to hang yet another poster (unless you recently updated your posters and these requirements are part of your combined poster). §247.5 is for the record keeping requirement; §248 covers enforcement and penalties. See also Lab.Code § 2810.5 for added requirements in the notice to employee.
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There are other new and amended 2015 laws, many of which include toughing up on discrimination at workplace, counting and compensating for meal&rest&recovery periods, revising applicable periods for claiming and establishing penalties. They all look more evolutionary rather than revolutionary developments and I won't be bothering you with those here.
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* It is easy to follow that the government has excluded itself from being a client-employer [Lab. C § 2810.3(a)(1)(B)(iii)] although I predict cases to explore in depth where the dividing line will be drawn, i.e. whether a semi-government entity or a "government actor" entity will be also exempt.
I also have to say, there are some exceptions, which look like last-minute additions lobbied in by certain industries [motor carriers, cable operators, motor clubs under Lab. C § 2810.3(p)].
There is also an exclusion for "homeowners" under Lab. C § 2810.3(n) "for labor or services received at the home or the owner of a home-based business for labor or services received at the home," but that's all. I don't know just how much pressure a "homeowner" exception will hold, given that a homeowner can also be a fully covered employer, there is an ambiguity in what "received at home," and whether or not it will be easy to establish a "home-based business." And think of the same situation if it will be a tenant working from his leased home, but not a homeowner ...
I also have to say, there are some exceptions, which look like last-minute additions lobbied in by certain industries [motor carriers, cable operators, motor clubs under Lab. C § 2810.3(p)].
There is also an exclusion for "homeowners" under Lab. C § 2810.3(n) "for labor or services received at the home or the owner of a home-based business for labor or services received at the home," but that's all. I don't know just how much pressure a "homeowner" exception will hold, given that a homeowner can also be a fully covered employer, there is an ambiguity in what "received at home," and whether or not it will be easy to establish a "home-based business." And think of the same situation if it will be a tenant working from his leased home, but not a homeowner ...
** A standard under this Section is even wider. A definition of "Labor Contractor" specifically includes one who supplies workers "with or without a contract." Lab. C § 2810.3(a)(3).
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