On March 9, Senate Bill 727 was gutted-and-amended by Senator Connie Leyva (D-Chino) relating to the liability of direct contractors. The bill would amend Section 218.7 of the Labor Code.
First, the bill would provide that, for contracts entered into on or after January 1, 2022, the direct contractor would also be liable for any contributions, deductions, and withholdings that the subcontractor was required to forward to the State of California pursuant to the Unemployment Insurance Code on account of the performance of the labor and the direct contractor would further be liable for any relief the Labor Commissioner could seek against the subcontractor for the subcontractor’s failure to obtain and maintain valid workers’ compensation coverage.
Second, the bill would remove the word “only” preceding any unpaid wage, fringe, or other benefit payments to specify that the direct contractor’s liability includes payments owed to the State of California pursuant to the Unemployment Insurance Code, penalties, liquidated damages, and interest owed by the subcontractor on account of the performance of the labor.
Third, the bill would add to the ability of the Labor Commissioner to enforce against a direct contractor the liability that could pursued to include seeking any relief against a direct contractor for its subcontractor’s failure to obtain valid workers’ compensation coverage as required by law.
Fourth, the bill would allow a third party who is owed fringe or other benefit payments to include penalties, liquidated damages, and interest.
Fifth, the bill would provide that the Employment Development Department may enforce against a direct contractor, pursuant to the procedures in the Unemployment Insurance Code or through a civil action, the liability created by these new provisions of law for the subcontractor’s failure to make payments to the State of California required by the Unemployment Insurance Code.
Sixth, the bill would specify that the subcontractor and any lower tier subcontractors must provide records showing its reports and payments to the Employment Development Department.
This bill is likely to be heard in its first policy committee in April.
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