Good morning, and Happy Monday.   I was going to take this week off, since I have been seeing a lot of out of offices replies when I send these, which means many people are out there and traveling again.  But I, too, am traveling next Monday, so I will get a short one to you this week, which will have to hold you over until the end of August.  And then we will be at the end of summer!  Where is this year going?

It’s pretty quiet on the COVID front; numbers are coming down, and we are getting close to the end of our California Supplemental Sick Pay for COVID, which will expire again this year at the end of September.   There haven’t been any exciting legal developments with the Supreme Court on hiatus and Sacramento still huddling about what it’s going to put on Governor Newsom’s desk to sign in a few months.  So in the meantime, I thought I would write about a topic that came up on a few calls with some clients last week that always causes confusion in California – joint employment.   And in particular, joint employment with both staffing companies or “PEOs,” but also joint employment or joint liability with on-site contractors or vendors.

USING STAFFING COMPANIES IN CALIFORNIA – WHAT YOU NEED TO KNOW

I got an email from a client last week that I get so frequently,  I turned the response into an article, and then a seminar.   He said he was getting solicited by a number of staffing companies, some calling themselves “PEOs” or Professional Employer Organizations, and he wanted to know what I thought of them.  I told him it was a complicated answer and that we should talk on the phone.  When he called, I asked why he wanted to use one.  He said that they were promising him that they could come in and “take over” his workforce, handle his administration, assume many of the payroll duties he now paid people to do, and it seemed like it would lighten his load to have someone else handle all his employees.   Maybe it would even help with some liability. 

So the first thing I explained to him is that these employees would all still be HIS employees.  Joint employment never reduces actual liability.    When you work with a staffing agency in California, you enter into a joint employment relationship.   Now, these employees belong to both you and the staffing company.  So, how does that benefit you?  Well, it can benefit you if the staffing agency has access to better health insurance at a lower cost, or if the staffing agency can get you a lower worker’s compensation modification number, thereby lowering your worker’s compensation insurance costs, if they agree to add these employees to their insurance plan and indemnify you if the employee names you instead (which they could still do).  Those are two very legitimate reasons to use staffing agencies – better benefits and lower worker’s compensation.   Also, if you have a lot of temporary or seasonal employees and your employee count fluctuates, having a company that can feed you employees quickly can be very useful.

However, you need to make sure you clarify the role of the staffing agency.  Are they going to provide an employee handbook? And if so, have you reviewed it?  I have seen many handbooks from many agencies, and many are not compliant.  I had one agency that required my client to use their handbook, and it contained a defective rest break policy in it.  It caused my client to be sued in a class action.  And no, it did not contain a class action waiver.  Nor did the agreement with the agency contain an indemnity clause which allowed my client to sue the agency.  Be VERY careful what agreements you sign.  And I would always reserve the right to use your own handbook.  The one we draft can be used with staffing agency employees (it is drafted for that contingency).

Check the credentials of the agency you use.  I had one client who used an agency who started missing payroll dates with their employees.  Again, as a joint employer, you would be liable for any late payroll.  Make sure if you sign any agreement, it allows you to cancel immediately upon any such breach of their obligations and that they will indemnify you for any such failure to perform. 

How much do you want the staffing agency to control?  Some will just act as a payrolling service and take on the worker’s compensation and maybe benefits.  Others will get more involved in the day to day human resources, but then, you may also have to run your personnel decisions by them before you discipline or terminate.  Many companies do not want to give us that kind of control. 

Most importantly, as I said above, do not enter into any staffing agreement without reading the agreement.  Some of these agreements require you to indemnify them in the case of litigation.  Be very wary of what you sign. 

Vendor and Contractor Liability – California Being California Takes it One Step Further

In June of 2018, the California Labor Commissioner issued $4.5 million in damages and penalties against the Cheesecake Factory, for wage and hour violations that affected 559 janitors at eight restaurants in Orange and San Diego Counties.  Cheesecake Factory’s vendor, Americlean Janitorial Services Corp., had subcontracted janitorial services at those stores through another company, Magic Touch Commercial Cleaning. The Commissioner found that the janitors worked 8-hour overnight shifts without breaks, and were also required to remain after their shifts until employees inspected and approved their work in the morning, for which they were not paid overtime.

When my team and I saw the decision, we assumed that the Labor Commissioner found the Cheesecake Factory liable on some sort of joint employer theory – maybe these companies were shell companies for some managers of Cheesecake Factory or something?  But then we realized something far scarier.  They relied on a little known section of the Labor Code, Section 2810.3, which had only been around for a few years then (2015).   That Labor Code Section says that not only is there joint employment for situations like staffing companies, but if you have at least 25 employees, and you hire contractors or vendors with at least five employees who work on-site for you, you as the hiring company are liable for the wage and hour violations for the employees of THAT VENDOR, CONTRACTOR OR SUBCONTRACTOR.  

So, this Labor Code Section could involve valet parking people, maintenance workers, gardeners, security crews, any of the above.  And think how hard it is to control the wage and hour compliance with your own employees.  How do you do it with some one else’s staff?   In all fairness, I have not seen a lot of these lawsuits yet.  But just wait.  It took a good ten or 15 years to really see PAGA get going. 

How many of you have indemnification agreements with those contractors and vendors?  Don’t you think you should?  Or should you require that they run those employee handbooks by you?  At a minimum, you should make sure that you require your contractors and vendors to comply with all federal and state wage and hour laws. 

Okay, well, I think I have left you all sufficiently flustered and bothered now for the next two weeks.   Now go find a beach somewhere and enjoy the rest of your summer.  I will be in hot sticky NYC, visiting our new office and seeing my son and daughter in law, my first time back in three years.   I CAN’T WAIT!!

Stay safe, stay cool, stay healthy.   Keep breathing. 

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