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Businesses Can No Longer Fully Rely on Labor Contractors to Shield Them From Worker Comp and Wage Liability

Businesses often rely on labor contractors to supply workers. This allows the business to concentrate on its core function while leaving the administratively burdensome and time consuming tasks of maintaining a work force (hiring, firing, disciplining, paying wages, and complying with relevant tax and regulatory schemes, including worker compensation laws) in the hands of the labor contractor. In the past, this arrangement also largely shielded the employer from liability to the workers or to the state for related problems. 

No longer. California has just adopted a new law (Assembly Bill 1897) that imposes liability for wage violations and for failure to comply with workers compensation requirements on businesses who engage their workers through labor contractors. Such businesses can no longer simply rely on the fact that its workers are provided by a third party to avoid such liabilities.

The likely consequences of this new law for California businesses that use labor contractors are:

               >     These businesses will have to pay closer attention to the wage and worker comp practices of their labor contractors - an administrative task that the concept of labor contracting was largely intended to avoid; and/or

              >      They will have to give more thought and attention to the financial capacity of their contractors to absorb all related claims; and/or

              >      They will have to include enforceable indemnity provisions in their labor supply contracts to make certain that any claims successfully asserted against them can ultimately be reimbursed by the contractor.

Contact Alex Pfeifer at Pfeifer Insurance Brokers (650 762-8070, alex@pfeiferins,com) for all of your small business insurance needs, including workers compensation, property, liability, group health, and business interruption insurance.


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