"Employment lawyers expect more litigation under new law - Bill signed by Gov. Jerry Brown holds companies responsible for violations by service companies"

The Daily Journal, September 30, 2014

By Laura Hautala, Daily Journal Staff Writer

Attorneys say a new union-backed law will lead to increased litigation against employers and discourage the use of contracted labor services, a common practice in industries throughout the state.

The law, signed by Gov. Jerry Brown Sunday, makes companies automatically liable for their subcontractors' labor law violations, making it easier for plaintiffs to sue companies that didn't directly employ them for unpaid wages and other infractions.

Many companies in California sell labor, sending out janitors to clean office buildings, security guards to construction sites, or temporary workers to run a retailer's cash registers during the holidays.

The new law says the companies that use the labor services - the office buildings, construction companies and retailers - are directly liable for labor law violations.

Lawyers for the companies that provide labor and the companies that pay for that service say the law is redundant, because workers can already prove in court that their working conditions and pay are actually set by the company that indirectly engaged them.

"It's unclear to me this legislation is necessary at all, unless it's to increase the burden of having [subcontractors] to such an extent that it becomes less attractive," said Fraser McAlpine, a shareholder at Jackson Lewis PC in San Francisco.

Plaintiffs' attorneys said the law was indeed meant to make the contracting company less comfortable with using subcontracted labor, but only if they were doing it to skirt employment laws. That problem is widespread, said Michael Rubin, a partner at Altshuler Berzon LLP in San Francisco.

"This addresses the problem where an employer uses subcontractors as a subterfuge to save money by facilitating workplace violations by the subcontractor," Rubin said.

Rubin helped represent a class of warehouse workers that sued Wal-Mart Stores Inc. as a joint employer and is currently in the settlement process.

Wal-Mart paid a company to manage the warehouse where its products would arrive from nearby Southern California ports. The warehouse company brought in workers from a staffing company to load and unload the Wal-Mart products.

Rubin argued Wal-Mart was a joint employer of the warehouse workers because it set the terms and conditions of employment. The workers claimed they weren't paid all wages owed because Wal-Mart pressured its subcontractor and sub-subcontractor to cut corners around labor laws.

The workers made headway in proving the employment relationship in court before entering settlement talks. But in the future, they won't have to get into a fact-intensive discovery process to make their case.

"This is going to make it easier for the plaintiffs to prevail in the next Wal-Mart warehouse case," Rubin said.

Bryan J. Schwartz, an Oakland plaintiffs' attorney who represents workers in class action proceedings, echoed Rubin's sentiments. "The loophole is closing," he said, noting that the 2nd District Court of Appeal also recently ruled a parent company is responsible for labor law violations of its wholly owned subsidiaries.

"It will not be a panacea for corporations to simply farm out the labor, either by contracting or by separately incorporating a host of subsidiaries and then trying to claim that they are off the hook for violations."

But Laura J. Maechtlen, a partner at Seyfarth Shaw LLP in San Francisco who represents employers, said the law casts too wide of a net.

A retailer that adds seasonal workers around the holidays, she said, might follow all the requirements, giving workers meal and rest breaks and reporting all their hours accurately to the staffing agency that sent them. But then the staffing agency could break the law by not paying the workers or failing to take out workers' compensation insurance, for example.

"[An] innocent, well-intentioned, well-doing company could then have significant liability imposed on them," she said.