California Businesses: Remember to Choose Labor Contractors Wisely

On November 5, 2019, the California Labor Commissioner cited Inventory Professionals Inc. and Trader Joe’s for fines totaling more than $1.6 million, holding them jointly liable for wage violations for workers supplied to Trader Joe’s.

Inventory Professionals Inc. provides Trader Joe’s with employees who perform inventory control work. The Labor Commissioner cited the two companies after its investigation determined that 64 employees worked approximately 65 hours a week during a three-year period ending in August 2018 without overtime wages.

Even though Inventory Professionals Inc. employed the workers, the Labor Commissioner also found Trader Joe’s liable under California’s client-employer liability law, in effect since 2015. The law holds businesses that obtain labor from a subcontractor jointly liable for the owed wages, damages and penalties, and workers’ compensation violations for the subcontracted workers.

California Labor Code section 2810.3 applies to businesses with more than five workers supplied by the labor subcontractor and 25 employees total (including those supplied through a labor contractor) that uses “workers” to perform labor “within its usual course of business,” which means “regular and customary work” of the client employer’s business.

To read more about this law that took effect in 2015, see our previous advisory here.

What Should Businesses Do to Protect Themselves?

Businesses should select labor contractors and interact with them as if the business is jointly liable for the workers provided. This means carefully selecting new labor contractors and reevaluating existing relationships, focusing on the contractor’s compliance with relevant labor laws, especially wage-hour, and ensuring that service agreements provide for indemnification and certifications of legal compliance.