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In the past few years, it has become a common practice among many California companies to use temporary staffing agencies (or recruiters) to fill in various employment positions. The benefits of having temporary employees are great:  no payroll expenses, reduced labor cost, no training necessary, flexible schedule, no overtime, etc. However, in the context of employment and labor law, this triangular relationship between the client, staffing agency and temp employee often raises a complex question: who is the actual employer or, in other words, who should be held liable in the event employees are subjected to  employment law violations?

Unfortunately, there is no a bright-line rule for determining the status of employment relationship for temporary-employment arrangements and the answer largely depends on the nature of the alleged violations (e.g. Labor Code, FMLA, FLSA, Worker’s Compensation) and specific  facts at cialis online pills hand. This post deals with the definition of “employer” under the California Labor code only.

Not every entity that provides temporary workforce to their clients is a temporary employer. California Labor Code section 201.3 defines a “temporary services employer” as any employing unit that contracts with clients or customers to supply workers to perform services for the clients or customers and that performs all of the following functions:

  • Negotiates with clients and customers for matters such as the time and place where the services are to be provided, the type of work, the working conditions, and the quality and price of the services.
  • Determines assignments or reassignments of workers, even if workers retain the right to refuse specific assignments.
  • Retains the authority to assign or reassign a worker to another client or customer when the worker is determined unacceptable by a specific client or customer.
  • Assigns or reassigns workers to perform services for clients or customers.
  • Sets the rate of pay of workers, whether or not through negotiation.
  • Pays workers from its own account or accounts.
  • Retains the right to hire and terminate workers.

The section 201.3 also provides a list of specific employers that are not “temporary services employer,” including:

  • A bona fide nonprofit organization that provides temporary service employees to clients.
  • A farm labor contractor, as defined in Labor Code section 1682(b).
  • A garment manufacturing employer, which, for these purposes, has the same meaning as “contractor” as defined in Labor Code section 2671(d).

Joint Employer Liability

Many California employers, who use temporary staffing agencies, mistakenly believe that they are shielded from liability for employment law violations simply because it is the staffing agency that hires and fires workers and maintains pay roll. This is not the case and under the California labor law both the client and staffing agency can be held liable for Labor Code violations.

The California Industrial Welfare Commission (“IWC”) as well as California courts define “employer” in terms of exercising control. For example, the IWC definition includes “any person … who directly or indirectly, or through an agent or any other person, employs or exercises control over the wages, hours, or working conditions of any person” The IWC’s definition recognizes that  multiple entities may control different aspects of the employment relationship. The most common example is when one entity hires and pays workers and places them with other entities that supervise the work.  Martinez v. Combs, s 49 Cal.4th at 59-60. Therefore, the IWC definition of “employer” is specifically intended to include both temporary employment agencies and the employers who contract with such agencies to obtain employees.  Martinez v. Combs, 49 Cal.4th at 59-60.

The IWC’s broad language “directly or indirectly” is included to prevent employers from structuring various “straw men” and other sham arrangements to avoid liability for wages. Martinez v. Combs, 49 Cal.4th at 71.

In one case, a television production company outsourced its payroll services to a third party company.  Plaintiffs who worked in a private police capacity to control crowds during commercial shoots were paid by the payroll company. The court held that the payroll company could not be held to be the plaintiffs’ employer under the Labor Code wage statutes because it did not exercise control over the plaintiffs’ wages. The court explained that preparing payroll, whether done internally by an employer or by an outside vendor, is largely a ministerial task. Futrell v. Payday Calif., Inc. (2010) 190 Cal.App.4th 1419, 143.

The Federal Labor Standards Act analogously considers workers in temporary services agency relationships to be jointly employed by the temporary services agency and the client company. Where a joint employment relationship exists, those employees “jointly employed” are counted as employees of both employers, even if not actually on the payroll of each. 29 CFR § 825.106(d); see Moreau v. Air France, 356 F.3d 942, 945-946, (9th Cir. 2004).

Practical Considerations

California employers that refer to an outside temporary staffing agency for workforce  may avoid or limit the exposure to employment law liability by implementing the following policies:

  • Temporary employees should be paid only though the temporary staffing agency.
  • Hiring and firing should be done exclusively by temporary staffing agencies.
  • Temporary employees should be given substantial control and discretion over details and performance of work. It is recommended to use labor of skilled workers.
  • The temporary employees should not generally be engaged in the clients or company usual business.
  • The duration of temporary employment relationship should not be too long.
  • The temporary employees should be required to have their own tools or equipment.

San Francisco Employment Law Attorneys

California employment law is highly complex and constantly evolving. If you have questions about this article or would like to use our services and expertise, feel free to contact us. We are a San Francisco litigation firm, specializing in business and employment law.
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