California Labor Code Section 2810.3: Employer Liability for Labor Contractor Violations

California Labor Code Section 2810.3 makes client employers liable for labor contractor wage violations and missing workers’ compensation coverage. Reduce risk through careful vetting, clear contracts, payroll monitoring, and tight compliance with statutory duties and narrow exemptions.

By Brad Nakase, Attorney

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Table of Contents

1. Introduction

2. What Took Place?

3. Labor Code Section 2810.3: What’s the Law?

4. A Few Explanations & Exclusions according to Labor Code Section 2810.3

5. Where Am I Going From Here?

6. What Should an Employer Do?

Introduction

You put a lot of effort into managing your company in accordance with the extensive and intricate set of regulations that control your hiring procedures. You pay premiums for skipped breaks, include every bonus in overtime rates, and make sure the paychecks include all the necessary information. You are very careful about paying your staff correctly.

A lawsuit is then filed against you, alleging that you are to blame for the employment-law infractions of another business you worked with. How can this be?

In reality, there are many ways that this can occur, including controlling the other firm or acting as a joint employer. A two-year-old law, however, is the latest “big gun” in this fight since the California Legislature believed that the conventional ways of determining liability were too difficult for workers. It holds one company specifically accountable for the misconduct of other companies that offer services, even when there is no joint authority over workers.

This summer, the California Labor Commissioner rendered the first official decision about this rule, which resulted in a general contractor receiving a penalty close to $250,000 for the transgressions of a subcontractor.

Even if the construction business was a part of this case, it’s essential to realize that the statute in question does not only apply to the construction, agricultural, or clothing industries. It also holds when you contract with another company to handle security, janitorial, warehouse, or other services as part of your regular business operations.

A company that seldom utilizes FedEx or UPS for package delivery is not likely to be affected by this, but what if your company uses these services to ship hundreds of products every week? What about the marketing firm you work with? The statute has ambiguous language. It is difficult to predict how far the legislation will extend until several issues are resolved through litigation.

What Took Place?

Champion Construction was engaged by Deacon Corporation (general contractor) to complete drywall and framing work on a significant Deacon construction job in El Segundo, California.

The Labor Commissioner claimed that Champion sometimes “bounced” their payments, shorted 47 people on their salaries, and eventually stopped paying them for four weeks. A number of Champion workers quit their jobs and lodged wage claims in June 2016.

In August of 2016, Champion & Deacon were cited by the Labor Commissioner for $329617 in unpaid hourly and overtime earnings, waiting time fines, rest period charges, civil penalties, and inadequate payment of hourly rates. The citations were not contested by Champion, either due to a lack of justification or financial constraints.

Deacon appealed, arguing that it was not responsible for Champion’s behavior. One of the Deacon superintendents acknowledged during the appeal’s hearing that they knew Champion was not paying its employees. The employer’s knowledge or ought to have known of the infraction is not required by the statute, but this admission undoubtedly hurt Deacon’s case.

Deacon did manage to present some information that helped to lower the obligation, and this summer, it was finally ordered to pay $249,879. This comes in addition to any money Deacon might have paid Champion for its assistance.

For legal analysis of the Labor Commissioner’s decision, Deacon has subsequently submitted a writ.

Labor Code Section 2810.3: What’s the Law?

California implemented Labor Code Section 2810.3 on 1^st January 2015. This legislation stipulates that a “client employer” will be held legally liable for specific employment-law infractions committed by subcontractors, staffing firms, or any “labor contractors” that provide labor to the client employer. The labor supplier’s refusal to adequately compensate its workers or to offer workers’ compensation coverage is one example of such a breach.

Even if the client employer has previously paid the hired company, it will still be responsible for any unpaid pay, fines, damages, and workers’ compensation responsibilities in certain situations. Only infractions involving employees who worked for the client employer (rather than all employees of the labor contractor) will subject the client company to liability.

The stipulations of Labor Code Section 2810.3 can’t be waived, and the statute forbids the client employer from transferring any of these legal obligations or obligations to the labor contractor.

A Few Explanations & Exclusions according to Labor Code Section 2810.3

According to the statute, a “client employer” is any type of business that hires or receives labor from a “labor contractor” to carry out labor in the course of its regular operations. The notion of “client employer” has some exceptions:

A company with fewer than 25 employees (this headcount includes employees supplied by the labor contractor);
A company that, at any given moment, receives five or fewer employees from an employment contractor; and
When the state of California or one of its subdivisions is the “client employer” (i.e., the government itself is excluded from the law).

Furthermore, if a homeowner employs a labor agency to undertake work on their house, they are not held personally liable under the law.

A person or organization that provides a client employer with people to perform work for the client employer’s typical course of operations, whether under a contract or not, is referred to as a “labor contractor” according to Labor Code Section 2810.3. This can include employment agencies, various subcontractors, and other companies; it should be emphasized that it is not limited to any certain sector or service category.

There are a few exceptions to the term “labor contractor,” chief among them being non-profit, social enterprises that offer services to employees and a hiring hall or labor apprenticeship program established in accordance with a contract of collective bargaining. A unionized company that utilizes the union recruiting hall is exempt from this rule, which highlights the fact that the measure was pushed by several significant unions.

Furthermore, a “client employer” of a trucking company contracted to move assets, freight, or home items is not held liable by the statute. There are a few more exceptions, but they are quite particular and limited.

The statute is ambiguous and open to numerous interpretations, several of which might not be settled out of court, like many other employment statutes in California.

Where Am I Going From Here?

For the reimbursement of wages and inability to obtain valid workers’ compensation protection, you “shall share with the labor contractor all of the legal accountability and civil damages for every employee provided by that labor contractor” once you meet the requirements for being a “client employer” who has hired a “labor contractor.” The legislative history shows that employees can establish culpability without having to demonstrate any duty, activity, or knowledge on the part of the client employer.

Ensuring that workers receive fair compensation and are protected by workers’ compensation coverage is the top priority of the law. Honorable objectives, but a dishonest labor provider could have its workers perform work for you without paying them a penny and then steal your money, leaving you responsible for paying the employees’ salaries as well as any penalties or fines. After that, you could pursue the labor contractor for indemnity, but that would only be fruitful if they hadn’t already spent or concealed their assets.

What Should an Employer Do?

Being proactive in the company operations is the greatest approach for safeguarding yourself as a “client employer” according to Labor Code Section 2810.3.

Make sure you comprehend the law, all of its nuances and exceptions, and how your company model may be affected by it.
Make sure to thoroughly investigate a “labor contractor” before hiring them, including their financial health and actual documentation of workers’ compensation coverage.
Examine your contract carefully, outlining any other acceptable responsibilities and solutions for any liabilities resulting from the labor contractor’s actions.
Keep an eye on the vendor’s payroll activity for the employees you were given. Ask them to send you a statement of payroll for every pay period, or give their bank permission to send you copies of the employees’ cancelled paychecks that you are responsible for.
A bond that could cover labor payments as well as fines and penalties for nonpayment should be considered by the contractor.
Keep an eye on the labor contractor’s employees. Are they keeping track of their hours? Are they putting in extra hours at work? Are they receiving meals and time for rest? Make sure that your labor contractor, who is their direct employer, is taking care of these issues appropriately.
Verify that current contracts adhere to this law and make any necessary updates. Revise contracts that were once “standard” for future usage.

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California Labor Code Section 2810.3: Employer Liability for Labor Contractor Violations

Introduction

What Took Place?

Labor Code Section 2810.3: What’s the Law?

A Few Explanations & Exclusions according to Labor Code Section 2810.3

Where Am I Going From Here?

What Should an Employer Do?

California Labor Code 5814: Penalties for Delayed or Unreasonable Workers’ Compensation Payments

California Labor Code 202: Final Paycheck Rules When Employees Quit

California Labor Code 1174: Employer Timekeeping and Recordkeeping Requirements

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California Labor Code Section 2810.3: Employer Liability for Labor Contractor Violations

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California Labor Code Section 204: Employee Rights When Employers Pay Late

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I-9 Compliance: Employer Rules, Penalties, and Best Practices

California Labor Code: Divisions, Laws, and Employee Rights Overview

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California Labor Code Section 226: Wage Statement Requirements & Penalties

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California Sick Leave Law 2025: Employee Rights, Accrual Rules, and Local Ordinances

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