Changes in CA Law Drastically Affecting Business Owners

As of Jan. 1, 2015, SB 477 amended various sections of the Business and Professions Code (” 9998.1 et seq .) to tighten regulation over foreign labor contractors ' persons and entities engaged in recruiting foreign workers for employment in California ' as well as their use. Foreign labor contractors must now register with the Labor Commissioner and be bonded. Businesses may not knowingly engage the services of an unregistered foreign labor contractor, and must disclose their use of foreign labor contractors to procure workers to the Labor Commissioner, or otherwise be subject to criminal sanctions and civil penalties. The statutory language defines foreign labor contractors in terms of their activities' effect within California, even if conducted wholly outside the United States, but excludes foreign governments and businesses procuring workers solely for their own use.

SB 477 also imposes on foreign labor contractors the duty to make various disclosures to the foreign workers they procure, and it gives foreign workers a right of action to claim for statutory damages against anyone who violates the provisions of the chapter. Underscoring the importance of making sure foreign labor contractors are properly registered, the statute provides businesses with a shield from liability for violations committed by the foreign labor contractor as long as they were registered at the time services were engaged for.

Liability from the Use of Labor Contractors Generally

Continuing with the theme of heightened duties on California employers that use outsiders to procure workers, businesses that use staffing agency-type labor contractors must now ensure that their temporary workers are properly paid pursuant to wage and hour rules and are covered by workers' compensation insurance.

Labor Code section 2810.3, which became effective Jan. 1, 2015, is designed to combat abusive use of labor contractors. The law makes the ultimate “client employer” of a worker share with the labor contractor the responsibility of properly observing wage and hour laws and securing workers' compensation insurance, as well as the liability if either of them fail to comply. Wholesale abuse seems to be the focus here, since the law excludes businesses with fewer than 25 employees, those that employ workers outside their usual course of business, and those that employ five or fewer workers from labor contractors.

In effect, section 2810.3 imposes a duty to inquire upon the client employer. However, the statute requires that the worker give 30 days' notice to a client employer prior to filing suit against it, thus reducing the possibility that a client employer would be liable for violations outside its knowledge or control. The client employer and the labor contractor may not retaliate against the worker for giving notice or for filing suit. Section 2810.3 also expressly allows client employers to reduce their exposure with contractual remedies such as indemnification agreements with the labor contractor.

Liability from the Use of Subcontractors

California employers should also ensure that workers provided by any contractual partners are not in fact employees improperly classified as independent contractors, especially if they are aware of facts suggesting the same. The Noe v. Superior Court decision by the Second Appellate District Court of Appeal in June will work in combination with section 2810.3 discussed above to put further pressure on employers who attempt to outsource away their responsibilities under labor laws. 237 Cal. App. 4th 316 (2015).

Noe deals with the interpretation of Labor Code Section 226.8, passed in 2011, which makes it unlawful for an employer to willfully misclassify an individual as an independent contractor. Companies that voluntarily and knowingly misclassify employees have been subject since 2011 to a civil penalty of between $5000 and $10,000 dollars per violation, as well as a modern twist on public shaming: a mandatory year-long notice on the company website and business premises stating that the company violated the law.

The Noe Decision

Despite the prevalence of the practice of misclassification, no published decision in California had interpreted the new law until Noe . This decision extends punitive liability to joint employers who have knowledge of the misclassification, rather than only the employer who made the classification decision itself. In fact, one of the defendants in Noe was two steps removed from the classification decision ' it was the contractor of a contractor of the alleged employer ' yet the court found each contractor could be liable as joint employers. This impacts, for example, businesses that rely on staffing agencies or labor contractors to fill their ranks, since they cannot use a third party as a shield if they are aware of facts that would indicate an independent contractor should be an employee. This also impacts businesses that rely on any kind of independent contractors at all, since presumably, those businesses would be just as liable if an independent contractor misclassifies himself or herself.

In addition, Noe settles a question that has existed since the law was passed: whether workers themselves are entitled to sue under the new law. Noe found that a “civil penalty” did not create a private cause of action, but explicitly left open the possibility that a private party was entitled to sue for them under California's Private Attorney General Act and retain 25% of the award. Lab. Code ' 2698 et seq.

Mandatory Paid Sick Leave

Businesses in California must now also abide by the Healthy Workplaces, Healthy Families Act of 2014, which took effect on July 1, 2015 (and was amended soon thereafter). Lab. Code ' 245 et seq . The Act provides most California employees with a minimum number of paid sick leave days and imposes various notice and record-keeping requirements on employers.

To be covered, the law only requires that employees work in California for the same employer for 30 days or more, and employees may begin to use their leave as early as the 90th day of employment with the employer. In rough terms, the law only excludes employees covered by collective bargaining agreements with specified terms, in-home support service providers, air carrier flight deck and crew, and certain retired public entity employees who reenter public employment. Employers are within the scope of the law regardless of size, which makes no distinction for government, part-time, temporary, and exempt employees.

The sick leave benefit accrues at the rate of one hour of paid leave for every 30 hours worked after July 1, 2015. Exempt employees are deemed to work 40 hours a week unless their normal workweek is less than that (employees with longer normal schedules presumably may not accrue more each week). Unused leave may be carried over to the next year, but may be capped by the employer at 48 hours (or six work days). Employers may further limit use of the benefit to 24 hours (or three work days) a year. Leave may be used for medical care, preventive care, or specified purposes related to domestic violence, sexual assault, or stalking of the employee or a family member, which includes spouses, siblings, children, parents, grandchildren, and grandparents.

Under the Wage Theft Prevention Act of 2011, employers also must provide notice of employees' entitlement to sick leave and related rights and an accounting of the sick leave available on each pay day. They must comply with a posting requirement and maintain records of hours worked and sick days, both accrued and used, for three years.

Evie Jeang, managing partner of Ideal Legal Group, Inc., is a Los Angeles-based litigator practicing employment law for nearly 15 years. She can be reached at [email protected] or 626-569-1882.

California is cracking down on companies that skirt labor and tax laws by misclassifying workers as independent contractors, and the state has instituted a major change by providing mandatory paid sick leave to nearly all employees in the state. Businesses must be aware of these changes and review their policies and contractual relationships to ensure compliance.

Liability from the Use of Foreign Labor Contractors

Businesses hiring workers from abroad for employment in California should do their due diligence in verifying that the foreign labor contractors they engage with are properly registered at the time their contract for services is begun. Businesses should also be sure to complete the Labor Commissioner filing as required by law.

As of Jan. 1, 2015, SB 477 amended various sections of the Business and Professions Code (” 9998.1 et seq .) to tighten regulation over foreign labor contractors ' persons and entities engaged in recruiting foreign workers for employment in California ' as well as their use. Foreign labor contractors must now register with the Labor Commissioner and be bonded. Businesses may not knowingly engage the services of an unregistered foreign labor contractor, and must disclose their use of foreign labor contractors to procure workers to the Labor Commissioner, or otherwise be subject to criminal sanctions and civil penalties. The statutory language defines foreign labor contractors in terms of their activities' effect within California, even if conducted wholly outside the United States, but excludes foreign governments and businesses procuring workers solely for their own use.

SB 477 also imposes on foreign labor contractors the duty to make various disclosures to the foreign workers they procure, and it gives foreign workers a right of action to claim for statutory damages against anyone who violates the provisions of the chapter. Underscoring the importance of making sure foreign labor contractors are properly registered, the statute provides businesses with a shield from liability for violations committed by the foreign labor contractor as long as they were registered at the time services were engaged for.

Liability from the Use of Labor Contractors Generally

Continuing with the theme of heightened duties on California employers that use outsiders to procure workers, businesses that use staffing agency-type labor contractors must now ensure that their temporary workers are properly paid pursuant to wage and hour rules and are covered by workers' compensation insurance.

Labor Code section 2810.3, which became effective Jan. 1, 2015, is designed to combat abusive use of labor contractors. The law makes the ultimate “client employer” of a worker share with the labor contractor the responsibility of properly observing wage and hour laws and securing workers' compensation insurance, as well as the liability if either of them fail to comply. Wholesale abuse seems to be the focus here, since the law excludes businesses with fewer than 25 employees, those that employ workers outside their usual course of business, and those that employ five or fewer workers from labor contractors.

In effect, section 2810.3 imposes a duty to inquire upon the client employer. However, the statute requires that the worker give 30 days' notice to a client employer prior to filing suit against it, thus reducing the possibility that a client employer would be liable for violations outside its knowledge or control. The client employer and the labor contractor may not retaliate against the worker for giving notice or for filing suit. Section 2810.3 also expressly allows client employers to reduce their exposure with contractual remedies such as indemnification agreements with the labor contractor.

Liability from the Use of Subcontractors

California employers should also ensure that workers provided by any contractual partners are not in fact employees improperly classified as independent contractors, especially if they are aware of facts suggesting the same. The Noe v. Superior Court decision by the Second Appellate District Court of Appeal in June will work in combination with section 2810.3 discussed above to put further pressure on employers who attempt to outsource away their responsibilities under labor laws. 237 Cal. App. 4th 316 (2015).

Noe deals with the interpretation of Labor Code Section 226.8, passed in 2011, which makes it unlawful for an employer to willfully misclassify an individual as an independent contractor. Companies that voluntarily and knowingly misclassify employees have been subject since 2011 to a civil penalty of between $5000 and $10,000 dollars per violation, as well as a modern twist on public shaming: a mandatory year-long notice on the company website and business premises stating that the company violated the law.

The Noe Decision

Despite the prevalence of the practice of misclassification, no published decision in California had interpreted the new law until Noe . This decision extends punitive liability to joint employers who have knowledge of the misclassification, rather than only the employer who made the classification decision itself. In fact, one of the defendants in Noe was two steps removed from the classification decision ' it was the contractor of a contractor of the alleged employer ' yet the court found each contractor could be liable as joint employers. This impacts, for example, businesses that rely on staffing agencies or labor contractors to fill their ranks, since they cannot use a third party as a shield if they are aware of facts that would indicate an independent contractor should be an employee. This also impacts businesses that rely on any kind of independent contractors at all, since presumably, those businesses would be just as liable if an independent contractor misclassifies himself or herself.

In addition, Noe settles a question that has existed since the law was passed: whether workers themselves are entitled to sue under the new law. Noe found that a “civil penalty” did not create a private cause of action, but explicitly left open the possibility that a private party was entitled to sue for them under California's Private Attorney General Act and retain 25% of the award. Lab. Code ' 2698 et seq.

Mandatory Paid Sick Leave

Businesses in California must now also abide by the Healthy Workplaces, Healthy Families Act of 2014, which took effect on July 1, 2015 (and was amended soon thereafter). Lab. Code ' 245 et seq . The Act provides most California employees with a minimum number of paid sick leave days and imposes various notice and record-keeping requirements on employers.

To be covered, the law only requires that employees work in California for the same employer for 30 days or more, and employees may begin to use their leave as early as the 90th day of employment with the employer. In rough terms, the law only excludes employees covered by collective bargaining agreements with specified terms, in-home support service providers, air carrier flight deck and crew, and certain retired public entity employees who reenter public employment. Employers are within the scope of the law regardless of size, which makes no distinction for government, part-time, temporary, and exempt employees.

The sick leave benefit accrues at the rate of one hour of paid leave for every 30 hours worked after July 1, 2015. Exempt employees are deemed to work 40 hours a week unless their normal workweek is less than that (employees with longer normal schedules presumably may not accrue more each week). Unused leave may be carried over to the next year, but may be capped by the employer at 48 hours (or six work days). Employers may further limit use of the benefit to 24 hours (or three work days) a year. Leave may be used for medical care, preventive care, or specified purposes related to domestic violence, sexual assault, or stalking of the employee or a family member, which includes spouses, siblings, children, parents, grandchildren, and grandparents.

Under the Wage Theft Prevention Act of 2011, employers also must provide notice of employees' entitlement to sick leave and related rights and an accounting of the sick leave available on each pay day. They must comply with a posting requirement and maintain records of hours worked and sick days, both accrued and used, for three years.

Evie Jeang, managing partner of Ideal Legal Group, Inc., is a Los Angeles-based litigator practicing employment law for nearly 15 years. She can be reached at [email protected] or 626-569-1882.