California Gov. Jerry Brown has signed into law a bill that imposes liability on companies when labor contractors fail to pay wages or provide workers compensation premium.

One expert said the law will be a “headache” for employers, requiring them to focus on an area they had not had to be concerned about previously.

Assembly Bill 1897, signed by Gov. Brown last Sunday, requires client employers to share, with their labor contractors, liability for the payment of wages and failure to obtain valid workers compensation coverage.

Michael A.S. Newman, a partner with law firm Hinshaw & Culbertson L.L.P. in Los Angeles, said “one of the big selling points” of labor contractors has been that the hiring company “doesn't need to worry about the headache of paying workers comp for people,” or being sure they're adequately paid, because it has been handled by the labor contracting firm.

“The law changes that,” said Mr. Newman. It says when you have this kind of situation the client business “also shares the liability” if workers are not paid appropriately under the wage and hour laws, or not provided with workers compensation coverage.

He said one section of the bill which may somewhat modify that requirement states that a client employer is not prohibited from “enforcing by contract any otherwise lawful remedies against a labor contractor for liability created by acts of labor contractor.”

Mr. Newman said he interprets that to mean a client employer could provide by contract for a situation where the staffing company agrees to indemnify the client company if the client company is found liable because of bad acts on the staffing company's part.

He said this provision is likely to encourage companies to work with larger, more financially stable staffing companies.

Nevertheless, he said the law is a headache for companies that have built their business of using contract workers. “Suddenly, a huge amount of thought has to go into making sure those contract workers are being properly treated by the staffing company,” he said.