Little-Known California Labor Law Could Burn Business

Sacramento, CAA little-known aspect of California labor law designed to protect workers from unscrupulous employers could also provide a surprise headache for any firm or business hiring a contractor for janitorial, security, or other services. Under California labor employment law, if a contractor fails to provide its employees with wages and benefits, the courts could come after the firm hiring the contractor—the entity that directly benefitted from the actions of those employees.

The November 9 issue of the San Fernando Valley Business Journal highlighted a little-known provision in the California Labor Code that was quietly added in 2004. Contained in Section 2810 of the Code, the provision holds both the contractor and its customer liable for any labor law violations committed by the contractor. The pivotal language centers on proving that the firm hiring the contractor knows, or should know, that there were insufficient funds or other provisions in the contract that would otherwise enable the contractor to meet his legal obligations.

The term "know" is broadly defined as "knowledge arising from a familiarity with the normal facts and circumstances of the business activity engaged in," that the contract does not have sufficient funds.

The phrase "should know" is broadly defined as the "knowledge of any additional facts or information that would make a reasonably prudent person undertake to inquire whether, taken together, the contract or agreement contains sufficient funds to allow the contractor to comply with applicable laws."

The provision in the California Labor Code was created in an effort to weed out unscrupulous contractors that facilitate low-ball tenders through the cheating of employees out of their rightful wages, payments and other benefits.

It puts the onus on any business or firm hiring a contractor in the state of California to avoid acceptance of a contractor's financial overtures at face value. Rather, it should thoroughly investigate the costs associated with providing the service to assure that the contractor has both a thorough knowledge of his legal obligations and the capacity to meet them via the resources of the contract.

Businesses often find it more advantageous to contract out rather than keep people on the payroll. However, any business that takes advantage of various low-ball "deals" could soon find itself on the receiving end of a class action lawsuit seeking to collect back wages and other penalties representing the wages and taxes the contractor did not pay.