Examples might include:

• Nurses placed at a hospital by a staffing agency
• Production line workers supplied by a temp agency for a specific function
• Restaurant workers shared between two different, but related, restaurants
• Seasonal workers hired at a retail store for the holiday season

This topic contains the following information:

• Joint-Employer Liability
• Practical Considerations When Leasing Employees
• Franchisors and Joint Employer Liability
• Contracting for Foreign Workers
• Health Care Staffing
• Benefits and Temporary Workers
• Unions and Temporary Workers

Employee leasing firms handle much of the responsibility that the law imposes on employers, such as payroll and other human resource functions, allowing you to spend more time on business itself. But a company who leases employees can lose much of the control necessary to avoid employment-related litigation.

Joint Employer Liability

Employers who contract out for services are increasingly being held responsible by enforcement agencies and the courts for wage and hour and other labor violations, and it is increasingly common that staffing agencies and the businesses that lease employees will be found to be joint employers.

Joint employer liability is a legal theory under which two companies are determined to be sufficiently connected with respect to an employee that they are held jointly responsible for legal violations. This means that a company may be held liable for harassment, discrimination, wage and hour and other claims that may be the fault of the other employer.

• There has been a trend toward significant expansion of when businesses will be found liable as joint employers. If you contract for outside labor, it is a good practice to have those arrangements reviewed by counsel.

In California, different tests might be used for determining joint employer status depending on the legal area at issue. For instance, one test might be used to determine if there is a joint employer relationship for the purposes of wage and hour liability, and another for sexual harassment or FMLA/CFRA coverage and responsibilities.

The Industrial Welfare Commission and the California Supreme Court adopted a broad definition of joint employer that 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.”1

While the issue of the right to control is often a key test in determining joint employer liability, California law may also hold businesses strictly liable for certain violations under the Labor Code.

Notably, businesses that use staffing agencies or other labor contractors to supply workers may be held strictly liable under Labor Code section 2810.3 for wage and hour violations regardless of who exercises control over the workers. 2

• If the labor contractor fails to pay its employees properly, fails to provider workers’ compensation coverage for those employees, or retaliates against employees for “blowing the whistle” on violations of the law, the “client employer” can be legally responsible.

California law extends liability to employers in nearly all industries and does not require that the employer had any prior knowledge about wage and hour violations or that the employer meets any joint-employer test.

The “client employer” shares “with a labor contractor all civil legal responsibility and civil liability for all workers supplied by that labor contractor” for all of the following:3

• The payment of wages;
• Failure to secure valid workers’ compensation coverage; and
• Violation of specified whistleblower protections in the Labor Code.4

A client employer or labor contractor must provide any state enforcement agency or department any information within its possession, custody or control to confirm compliance with applicable state laws.

A client employer can contract for indemnification from the labor contractor for the labor contractor’s failure to pay wages or secure workers’ compensation coverage. There is, however, one exception; client employers cannot shift any legal duties or liabilities under workplace safety laws to the labor contractor.

For information on contractor liability in specific industries see ”Requirements for Labor Contractors” in Wage and Hour Requirements for Specific Industries.

Coverage and Exclusions

There are important definitions of “client employer” and “labor contractor” that you need to be aware of if you are contracting for labor.

Labor Code section 2810.3 applies to any “client employer,” defined as a business entity with 25 or more workers that obtains or is provided at least six workers to perform labor “within its usual course of business” from one labor contractor or various labor contractors. In other words, this law could apply to employers who use staffing agencies or other labor contractors to supply workers.

The following business entities are excluded from the definition of “client employer” or from the liability imposed under the provisions of this law, under the following conditions and contracts:

• A business entity with fewer than 25 workers (including those hired directly by the company and those obtained from, or provided by, any labor contractor);
• A business entity that has five or fewer workers from a labor contractor or various labor contractors at any given time;
• A motor carrier of property that contracts with or engages another motor carrier of property to provide transportation services;
• An employer that utilizes a third-party motor carrier of property with interstate or intrastate operating authority to ship or receive freight;
• Cable operators, telephone corporations and direct-to-home satellite providers that contract with a company to build, install, maintain or perform repair work, as long as the name of the contractor is visible on employee uniforms and vehicles;
• A motor club that contracts with third parties to provide motor club services, if the name of the contractor is visible on the contractor’s vehicles; or
• The state or any political subdivision of the state.
• An employer that uses a third-party household goods carrier permitted by the Public Utilities Commission to move household goods; and
• A permitted household goods carrier that contracts with or engages another household goods carrier to move household goods.

A “labor contractor” is an individual or entity that supplies workers to perform labor within the client employer’s “usual course of business,” defined as “the regular and customary work of a business, performed within or upon the premises or worksite of the client employer.” In other words, this law applies only to work done within the usual course of the client employee’s business.

Example: A law firm contracts with a furniture repair company to come and fix a table in the conference room. The furniture repair company is not performing labor within the law firm’s usual course of business, which is the practice of law, not furniture repair. Their contract to get the table fixed is not covered by this law.

Example: A 100-person law firm contracts with a staffing agency to provide 10 temporary paralegals for an upcoming trial. The paralegals are performing labor within the law firm’s usual course of business and the contract would be covered by this law.

The following entities are specifically excluded from the definition of “labor contractor” and, therefore, the provisions of the law will not be triggered if they are the ones providing the labor to the client employer:

• A bona fide non-profit community-based organization that provides services to workers;
• A bona fide labor organization or apprenticeship program or hiring hall operated pursuant to a collective bargaining agreement;
• A motion picture payroll services company; or
• A third party who is a party to an employee leasing arrangement if the employee leasing arrangement contractually obligates the client employer to assume all civil legal responsibility and civil liability under the law.

• The law specifically states that it does not impose liability on a business for using an independent contractor, other than a labor contractor. Nor does it change the definition of independent contractor. Employers should continue to make sure that any workers classified as independent contractors meet the test. For more information, see Independent Contractor.

A “worker” does not include an employee who is properly classified as exempt from the payment of overtime pursuant to the administrative, executive or professional exemption in California’s Wage Orders. Therefore, if the contract is for employees that fall within any of these exemptions, this law will not apply.

Administrative or Civil Actions

A worker who believes they have not been properly paid or who has suffered an injury and there is no workers’ compensation policy can pursue an administrative claim or civil action against the client employer, labor contractor or both.

If the worker pursues a civil action, the employee or representative has to provide notice to the client employer of the alleged violation(s) 30 days before filing the civil action.5

If the worker pursues an administrative claim, no prior notice to the client employer is required.

To prevail in an administrative or civil action against the client employer for the labor contractor’s alleged violations, the worker will need to prove:

• That they were not properly compensated or provided with workers’ compensation coverage;
• That these violations occurred while the worker was working pursuant to a contract for labor between the client employer and labor contractor; and
• The contract was for work within the client employer’s “usual course of business,” meaning that the work was regular and customary for the client employer and performed within or upon the premises of the worksite of the client employer.

Port Drayage Motor Carriers

Joint liability is also imposed on client employers with 25 or more employees who hire port drayage motor carriers (trucking companies) with certain unpaid employment-related judgments, affecting businesses such as retailers, agriculture and auto dealers who use port truckers to transport products from ships.6 This is a significant expansion of current law, which can hold the client employer liable when a labor contractor’s employee is performing work that is in the “usual course of the client employer’s business” so that the same wage and hour protections apply to two employees performing the same work side-by-side. The law imposes joint liability for the client employer even when the violations don’t occur at its worksite.

Port trucking companies will be placed on a Division of Labor Standards Enforcement (DLSE) website “blacklist” if they have an unsatisfied final judgment for taxes, various wage and hour violations, unreimbursed expenses, failure to provide workers’ compensation coverage or independent contractor misclassification. A customer that uses a port trucking company on the blacklist will share all civil legal responsibility and civil liability for services obtained after the date the trucking company appeared on the list. This includes joint and several liability for the full amount of unpaid wages, unreimbursed expenses, damages and penalties, including applicable interest.

The joint and several liability provisions include any amounts found due for employment tax assessments issued by the state and civil liability stemming from the motor carrier’s failure to comply with applicable health and safety laws, rules, or regulations.

Prior to providing services to a customer, a port drayage motor carrier on the DLSE blacklist must provide written notice to the customer of any unsatisfied final judgments. However, the motor carrier’s failure to provide the notice to a client is not a defense to the joint and several liability. There are some exemptions under this new law, including employees who are covered by certain types of collective bargaining agreements.

Best Practices for Employers Who Contract for Labor in California

Employers that use staffing agencies should be cautious and evaluate the agency in advance to determine if the contractor complies with California’s labor laws. Employers may want to involve legal counsel, human resources, and payroll in this evaluation.

• Any entity that falls within the definition of “client employer” may want to contact legal counsel to determine what efforts may be made to limit the exposure of liability for a contractor’s wage and hour violations, failure to secure workers’ compensation coverage or violations of whistleblower protections.

Additionally, employers may wish to consider the following tips:

• Review all existing contracts for labor or services to determine what contracts may fall within the scope of “usual course of business.” For those contracts that qualify, contact those contractors to obtain assurances of their labor and employment compliance.
• Consider including legal protections for wage and hour violations, workers’ compensation coverage and claims involving retaliation for protected conduct — including duty to defend and/or indemnification provisions, in new and existing contracts.
• Limit reliance and use on contracted labor or services and determine internally where efficiencies can be made with regard to workload or hiring of additional employees.

Joint Employment Under Federal Law

Like California statutes and regulations, federal law recognizes the joint employer doctrine. Different joint employment tests may apply, depending on the legal issue.

For example, on April 23, 2026, the U.S. Department of Labor (DOL) proposed a rule setting the standard for when two or more employers may be joint employers under three federal laws — the Fair Labor Standards Act (FLSA), the Family and Medical Leave Act (FMLA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA).

The proposed rule recognizes two types of joint employment:

• Vertical joint employment: In this more common scenario, an employee is jointly employed by two or more employers that simultaneously benefit from the work. A staffing company is one example.
• Horizontal joint employment: In this less common scenario, an employee works separate hours for two or more employers in the same workweek, and the employers are “sufficiently associated” with each other to be joint employers.

For vertical joint employment, the proposed rule creates a four-factor balancing test focused on whether the potential joint employer exercises substantial control over the terms and conditions of the employee’s work. The factors are whether the potential joint employer:

• Hires or fires the employee;
• Supervises and controls the employee’s work schedule or conditions of employment to a substantial degree;
• Determines the employee’s rate and method of payment; and
• Maintains the employee’s employment records.

The determination doesn’t hinge on a single factor but is made based on “all of the facts in a particular case.” While these factors carry the most weight, the proposed rule identifies other relevant factors, including the potential joint employer’s right or ability to control the employee, even if they don’t actually exercise that control.

Other relevant factors may include whether the joint employer exercises significant control over other terms and conditions of employment, other than those listed in the four main factors, and whether the employee is economically dependent on the potential joint employer. These, however, are less important than the four main factors listed above.

To determine horizontal joint employment, the proposed rule states that employers will be “sufficiently associated” if:

• They have an arrangement between them to share the employee’s services;
• One employer is acting directly or indirectly in the interest of the other employer in relation to the employee; or
• They share control of the employee, directly or indirectly, by reason of the fact that one employer controls, is controlled by or is under common control with the other employer.

The National Labor Relations Board (NLRB) has its own standard to determine when employers may be joint employers under the National Labor Relations Act (NLRA).7

Under the NLRB’s rule, an entity may be considered a joint employer of a separate employer's employees only if the two share or codetermine the employees' essential terms and conditions of employment, which are defined as wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction. To establish than an entity shares or codetermines the essential terms and conditions, the entity must possess and exercise substantial direct and immediate control over one or more essential terms or conditions of employment.

Evidence of indirect control over the terms and conditions of employment may also be relevant, but only to the extent it supplements or reinforces evidence of the entity’s possession or exercise of direct or immediate control.

Practical Considerations When Leasing Employees

Some general issues to consider when deciding whether to lease employees and from whom to lease them:

• Is the leasing company well-versed in payroll, employment practices and personnel record keeping requirements under California and federal law? Do they comply with California’s wage and hour laws? Do they comply with California’s laws providing whistleblower protections? Are they properly paying all required wages?

Request a sample personnel file and a description of the leasing organization’s payroll process. Ask your counsel to review this information to ensure it meets legal requirements. For more information, see “Final Pay for Temporary Employees” in Final Pay.

• How does the leasing organization screen applicants during the hiring process?

You can be responsible for negligent hiring if the leasing organization fails to properly screen applicants before hiring them. Inquire as to how thoroughly the leasing organization checks references and what type of background checks are available.

• Does the leasing organization provide and administer employee benefits for the leased employees?

Consider how the leasing organization’s benefits compare with those provided to your regular employees to avoid the morale problems that could be created if there is great disparity between the two. On the other hand, leasing organizations can self-insure or be entitled to low group rate premiums, meaning lower costs for providing benefits.

• What type of indemnification is provided for liability arising from the violation of employment laws?

Request proof of bonding or insurance and written assurance of indemnification, then review the leasing organization’s assets to ensure it is a solid organization and apt to remain in business. Consult legal counsel.

• Who will provide workers’ compensation coverage for the leased employees?

Confirm coverage if the leasing organization is securing the coverage.

• Who will be responsible for workplace safety issues, such as training?

Existing case law indicates that you cannot divest yourself of your duties under the occupational safety and health laws.

• Will employees receive different pay for the same work depending on if you or the leasing organization employs them?

This situation could violate California’s Fair Pay Act, which prohibits gender discrimination in wage rates, and requires equal pay for substantially similar work when viewed as a composite of skill, effort and responsibility.

• Will the leased employees count toward the minimum employee threshold for the purpose of various employment laws?

Leased employees may count toward these thresholds, especially if a joint employment relationship is found. You should seek legal advice on the question of whether any leased employees count toward a particular minimum employee threshold.

• What are the consequences if your current employees will be hired by a leasing organization and then leased back to you?

Formally terminate your current employees, including all normal termination procedures, such as final wages, payment for accrued vacation and required notices. The leasing organization should then comply with all normal hiring procedures, including compliance with immigration laws, required notices and completion of withholding forms. Certain employee benefit rights, such as COBRA, could arise as a result of this practice. A court may also find this worker to be an “employee” of your company.

Franchisors and Joint-Employer Liability

The broad definition of “joint-employer” does not necessarily extend to the franchisor/franchisee business model. Franchisors are typically not liable as joint employers unless they exert substantial control over the franchisee’s day-to-day operations, despite recent efforts to expand franchisor liability for working conditions at franchise locations.

For example, the Ninth Circuit Court of Appeals ruled that McDonald’s does not control the wages paid to employees at its franchises and, as a franchisor, is not responsible for any wage and hour violations that occur at franchisees’ locations.8 The court rejected the workers’ claim that McDonald’s is liable because McDonald’s “ostensibly” controlled workers’ wages through an agent. Instead, the court ruled that California’s wage and hour laws only apply to employers who actually control wages and workplace conditions, not “ostensibly” control.

Franchisors have also been protected from sexual harassment claims involving misconduct by employees of the franchisee. See “Franchisor Liability for Sexual Harassment” in Liability for Sexual Harassment for more information.

• Franchisors who want to avoid joint liability need to stay out of the franchisee’s day-to-day employment decisions, such as decisions on wages, hours and working conditions.

Contracting for Foreign Workers

Federal law permits certain foreign workers to engage in employment in the United States under specified conditions. State law regulates foreign labor contractors who recruit foreign workers for assignments in California, including regulation of contracts, recruitment procedures and representations, and information as to terms and conditions of employment.

The law provides restrictions for employers who use foreign labor contractors to obtain temporary foreign workers in California.9 This law was intended to address human trafficking concerns.

• A “foreign labor contractor” means a person who performs “labor contracting activity,” which is “recruiting or soliciting for compensation a foreign worker who resides outside of the United States in furtherance of that worker’s employment in California.” Under current California law, foreign labor contractors are those recruiting foreign workers who are nonagricultural workers under the federal H-2B visa program established under the federal Immigration and Nationality Act. Effective July 1, 2027, this will be expanded include farm labor contractors recruiting agricultural workers under the federal H-2A visa program.

The law:

• Requires foreign labor contractors to register with the Labor Commissioner and meet registration, licensing and bonding requirements. Effective July 1, 2027, the registration requirements will be extended to farm labor contractors of agricultural workers under the federal H-2A visa program.
• Prohibits employers from using non-registered foreign labor contractors to supply workers in California.
• Requires foreign labor contractors to disclose specific information in writing to each foreign worker who is recruited for employment in a language that the worker understands.
• Allows for a civil action and penalties for non-compliance and joint liability for employers who use non-registered foreign labor contractors.

• Employers who use temporary foreign workers in California should seek the advice of labor and employment and/or immigration counsel.

Health Care Staffing

Employment agencies that provide temporary certified nurse assistants (CNAs) or licensed nursing staff for long-term health care facilities are subject to special requirements. Prior to referring CNAs or licensed nursing staff, an employment agency must perform all of the following actions:

• Conduct a personal interview with each individual.
• Verify the individual’s experience, training, references and licensing and certification.
• Verify that the individual has successfully secured a criminal record clearance.10

In addition, employment agencies referring CNAs or licensed nursing staff for employment must perform all of the following actions:

• Adopt policies and procedures about prevention of resident abuse.
• Provide written verification that referred CNAs or licensed nursing staff do not have unresolved allegations against them involving the mistreatment, abuse or neglect of a patient.
• Provide a list of temporary employees who have been referred to a specific facility during a labor action, if requested by the state Department of Health Care Services.11
• Require that any employee referred to a long-term health care facility be identified as a temporary staff person in the facility’s daily staffing levels. These staffing levels must be posted in accordance with federal regulations.12

Verification for Certified Nurse Assistants

An employment agency that refers temporary CNAs to a long-term health care facility must give the facility written verification that each CNA meets all of the following criteria:

• Is in good standing with state certification requirements
• Has had at least six months of experience working in a long-term care facility
• Meets health and training requirements
• Will participate in the facility’s orientation program and any in-service training programs at the facility’s request13

The employment agency also must provide each CNA’s professional certification number and the date their certification expires.14

Verification for Licensed Nursing Staff

An employment agency that refers temporary licensed nursing staff to a long-term health care facility must provide the facility with written verification that the individual meets all of the following criteria:

• Is in good standing with state certification requirements
• Meets health requirements15

Benefits and Temporary Workers

Employers should clearly define in their handbooks, policies and benefits plans which individuals are eligible for benefits. Two court decisions have indicated that, without careful planning on your part, temporary and leased employees can become eligible for employee benefits.

In Burrey v. Pacific Gas & Electric Co., the Ninth Circuit Court of Appeals found that temporary or leased employees may be common-law employees entitled to participate in certain employee benefit plans.16 In this case, individuals were leased to PG&E through a series of employment agencies for more than a decade. They used PG&E’s equipment, training classes, business cards, drove PG&E cars and were reimbursed by PG&E for travel expenses. The court held that unless all contingent workers are specifically excluded from an employee benefit plan, they can become entitled to benefits, including medical, pension and retirement plan benefits, under the theory that they are common-law employees.

In Vizcaino v. Microsoft Corp., a Ninth Circuit Court of Appeals panel held that current and former temporary employees of Microsoft Corporation should be entitled to the same benefits as were the misclassified independent contractors.17 For more information on this case, see “Benefits and Independent Contractor” in Independent Contractor.

Because of the potential impact of these cases on employers who use contingent or temporary workers, employers should clearly define benefits eligibility hand handbooks and policies and consult legal counsel before using contingent workers on a long-term basis.

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1. IWC Wage Orders; Martinez v. Combs, 49 Cal 4th 35 (2010)