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Contracting Tips from an HOA Employment Lawyer
Avoiding Employment Claims When You’re Not the Employer
By Aaron Hayes, Esq.
California has long set the national standard for employee protections with robust labor laws covering virtually every aspect of the employment relationship. In particular, California’s “wage and hour” laws governing the payment of employee wages create significant obligations (and risk) for employers and unwitting homeowners associations whose vendor contracts are insufficient. Fortunately, strategies to reduce risk exist.
THE DEVIL IN THE DETAILS - LABOR CODE 2810
California Labor Code section 2810 (“Section 2810”) generally prohibits an association from contracting with a construction, janitorial, or security guard contractor if they know (or should know) the contract does not include “funds sufficient to allow the contractor to comply with all applicable local, state and federal laws or regulations governing the labor or services to be provided.” 1
Courts interpreting Section 2810 have interpreted this sweeping (and vague) language to mean that the contract price must be enough to allow the contractor to pay all workers performing the contract at least minimum wage for all hours worked (Castillo v. Toll Brothers Inc. (2011) 197 Cal.App.4th 1172, 1192.).
If the contract price is insufficient to do so, not only is the contractor liable for resulting wage violations, but the aggrieved workers may also sue the contracting association for their actual damages (i.e., wages owed) or penalties of $250 per employee for initial violations and $1,000 per employee for subsequent violations. Coupled with attorneys’ fees and costs employees are allowed to recover in any such action, the potential exposure is substantial.
Fortunately, Section 2810 provides a statutory safe harbor of sorts, although its requirements are onerous. (Section 2810(b)-(e).) Specifically, Section 2810 permits a “rebuttable presumption.” A contract complies with its requirements if it is contained in a single written document, signed and dated by the parties, containing ALL of the following information:
1. The parties’ names, addresses and telephone numbers and the contractor’s tax identification number;
2. A description of the work/services and when they will commence and be completed;
3. The contractors’ workers’ compensation insurance policy number and the insurance carrier’s name, address and telephone number;
4. The vehicle identification numbers for any vehicles the contractor will use in performing the work/services along with the name, address and telephone number of the contractor’s vehicle liability insurance carrier;
5. If the contractor will provide employees with housing to facilitate the work/services, the address where workers will be housed;
6. The total number of employees who will perform work/ services pursuant to the contract, the total amount of wages they will be paid and paydays;
7. The amount of all payments to be made to the contractor pursuant to the contract; and
8. The total number of persons who will perform work/ services pursuant to the contract as independent contractors along with the identification numbers of any licenses such independent contractors must have by law to perform such work/services.
If the number of employees, wages to be paid, or number of independent contractors is unknown when the contract is initially signed, a best estimate may be stated, but once the actual numbers are known the contract must be supplemented in a single written document signed by the parties.
Likewise, if any other of the safe harbor information above changes during the contract’s performance, the parties must similarly supplement the contract. A copy of the contract and any supplements must be kept for at least four years following the contract’s termination or completion (Section 2810(f).).
STRATEGIES FOR LIMITING LIABILITY
It is no overstatement that Section 2810 creates risk for associations and its safe harbor provisions are somewhat burdensome, however, the following strategies will help mitigate the potential risk.
COMPLY WITH SECTION 2810
Associations should ensure construction, janitorial, and security contracts include statutorily required information to allow the association to assert the safe harbor presumption if a claim arises.
To simplify including this information in vendor contracts and ensure consistency, associations can create a template addendum containing information required by Section 2810, which vendors complete, the parties sign and it then is included as part of the contract. If circumstances require an update to the Section 2810 information while the contact is being performed, a new addendum may simply be executed.
INDEMNIFICATION FOR EMPLOYMENT CLAIMS
Apart from Section 2810, associations should request vendors agree in the contract to defend and indemnify the association, its directors and officers from any employment-related claim made by the vendor’s employees. While such an obligation does not keep an association from being named in a claim, it will offer the association protection if such a claim is made to offset the cost of litigation and the risk of an adverse judgment.
CHOOSING VENDORS FOR SUCCESS
It goes without saying that the vast majority of risk, whether under Section 2810 or otherwise, may be avoided by working with reputable vendors who have reputations for good business practices and honest services. To that end, due diligence is essential in vendor selection through obtaining references, checking license statuses and litigation histories, and verifying insurance coverages.
Doing so not only mitigates risk, but also helps ensure the association does business with vendors who will honor their obligations under their contracts. While the complete elimination of risk is impossible, careful attention to these strategies will go far in limiting associations’ exposure to employment-related claims from others’ employees.
Aaron Hayes, Esq.
Aaron Hayes, Esq., is an attorney with O’Toole Rogers, LLP and has 10 years of experience in the industry.
