The California legislature is considering a bill that could rewrite the relationship between employers and temporary staffing agencies. Assembly Bill 1897 (Hernandez, D-48) would make client employers that hire laborers from temporary agencies liable for the failure of those agencies to provide workers’ compensation insurance, violate wage and hour laws, or fail to withhold proper taxes.
According to the bill introduction language, “[AB 1897] would require a client employer, as defined, to share with a labor contractor 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.”
Employers hiring temporary staffing agencies would be responsible for performing due diligence by checking into the internal practices of the staffing agencies to determine whether agencies are properly funded to comply with labor laws and regulations, and the employer, as a client of the agency, would be held responsible if the staffing agency failed to meet these requirements. Under the current version of the bill, it would be impossible to “contract around” this requirement as a waiver would be deemed to violate public policy.
Promoters of AB 1897, including the California Labor Federation, claim that the bill is designed to protect employees of staffing agencies from wage theft and lack of workers’ compensation coverage. But the rationale and goal seems to run deeper as proponents also point to wage disparity between full-time and temporary workers, benefit differences, and the impossibility of collective bargaining amongst others doing the same type of work for the same employers. This legislation could, effectively, end the staffing agency model by making it difficult for most small businesses to use the services.
According to the California Chamber of Commerce, which opposes the bill, employers who do not have dedicated human resources or legal departments rely on temporary agencies to prescreen employees, to fill seasonal and short-term positions, provide cover for employees who are absent, and to protect the core group of employees by avoiding layoffs or workforce reductions.
AB 1897 would lead to more regulation of small businesses and make it harder to do business by holding them responsible for performing due diligence by seeking agency data outside of their purview and making them financially responsible for factors that are beyond their control, including businesses issues that could drive staffing agencies into bankruptcy. While most staffing agencies are properly insured and funded, this bill will cause small businesses anxiety over increased fines and litigation and create a chilling effect throughout the California labor market.
AB 1897 is presently before the Assembly Committee on Labor and Employment.
Michael D. Peabody is a Partner out of B&B’s Woodland Hills office. He can be reached at firstname.lastname@example.org.
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