Friday, June 10, 2005

Employer's Liability For A Contractor's Labor Code Violations

Although Labor Code section 2810 quietly went into effect on January 1, 2004 and does not appear to have caused much alarm during the last year, its significance to certain industries or employers who routinely use contractors will not go unnoticed for long.

The law prohibits persons or entities from entering into contracts or agreements for labor or services with a construction, farm labor, garment, janitorial, or security guard contractor where the person or entity knows or should know that the contract or agreement does not include funds sufficient to allow the contractor to comply with all applicable local, state, and federal laws or regulations governing the labor or services to be provided. An employee who is aggrieved by a violation of the law may file an action for damages to recover the greater of all of his or her actual damages or $250 per employee per violation for an initial violation and $1000 per employee for each subsequent violation. Upon prevailing in an action, the employee also may recover costs and reasonable attorney’s fees.

In essence, the law holds entities strictly liable for their contractors’ and subcontractors’ compliance with applicable laws, including those affecting wages and hours, safety, benefits, civil rights, and workplace conduct, among others. An aggrieved employee no longer needs to prove that the person or entity jointly employed him or her, along with his or her direct employer, in order to collect damages from the person or entity for its contractors’ violations of the law.

The breadth of the duty created by this law is startling. For purposes of the statute, the term “knows” includes but is not limited to “knowledge, arising from familiarity with the normal facts and circumstances of the business activity engaged in, that the contract or agreement does not include funds sufficient to allow the contractor to comply with applicable laws.” The phrase “should know” includes, but is not limited to, “knowledge of any additional facts or information that would make a reasonably prudent person undertake to inquire whether, taken together, the contract or agreement contains sufficient funds to allow the contractor to comply with applicable laws.” In addition, the law provides that a failure by a person or entity to request or obtain any information from the contractor that is required by any applicable statute or by the contract or agreement between them, constitutes knowledge of that information. Thus, contractors cannot claim “hear no evil, see no evil” as a defense.

There are two minor exceptions to the law. Persons or entities who execute a collective bargaining agreement covering the workers employed under the contract or agreement and persons who enter into a contract or agreement for labor or services to be performed on their home residences (provided that a family member resides in the residence for at least a part of the year) are excepted from the law.

For the vast majority of entities that are not excepted from the law, there is a safe harbor provision. There is a rebuttable presumption affecting the burden of proof that there has been no violation of the law where the contract or agreement meets certain requirements. A contract or agreement with a construction, farm labor, garment, janitorial or security guard contractor for labor or services must be in writing, in a single document, and contain the following provisions:

  1. The name, address, and telephone number of the person or entity and the contractor through whom the labor or services are to be provided;
  2. A description of the labor or services to be provided and a statement of when those services are to be commenced and completed;
  3. The employer identification number for state tax purposes of the contractor;
  4. The workers’ compensation insurance policy number and the name, address, and telephone number of the insurance carrier of the contractor;
  5. The vehicle identification number of any vehicle that is owned by the contractor and used for transportation in connection with any service provided pursuant to the contract or agreement, the number of the vehicle liability insurance policy that covers the vehicle, and the name, address, and telephone number of the insurance carrier;
  6. The address of any real property to be used to house workers in connection with the contract or agreement;
  7. The total number of workers to be employed under the contract or agreement, the total amount of all wages to be paid, and the date or dates when those wages are to be paid;
  8. The amount of the commission or other payment made to the contractor for services under the contract or agreement;
  9. The total number of persons who will be utilized under the contract or agreement as independent contractors, along with a list of the current local, state, and federal contractor license identification numbers that the independent contractors are required to have under local, state, or federal laws or regulations; and
  10. The signatures of all parties and the date the contract or agreement was signed.

Any material changes to the terms and conditions of the contract or agreement must be in writing, in a single document, and contain all of the provisions listed above that are affected by the change. If any of the above provisions are unknown at the time the contract or agreement is executed, the best estimate available at the time is sufficient to satisfy the requirements. If an estimate is used in place of actual figures, the parties to the contract or agreement have a continuing duty to ascertain the information and to reduce that information to writing once the information becomes known. The breadth and detail of information required by the safe harbor provision, as well as the ongoing requirement to update the information as it changes, make it an onerous one to meet.

Disclaimer: This is simply a general overview and is not a comprehensive article regarding a specific factual scenario. Each factual scenario is different and there is not enough time, nor space to address all different scenarios. You need to speak with a lawyer if you have a legal question.


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