You brought in workers through a staffing agency to cover a busy season or fill a skills gap. The agency handled recruiting, payroll, and paperwork. You assumed that arrangement kept your business a step removed from employment risk. Then the agency was hit with a wage and hour lawsuit, and a few weeks later, your company was named too, because one of the workers spent months on your job site under your managers' direction.
This surprises a lot of business owners, and understandably so. You did not run payroll for that worker. You did not issue a 1099 or a W-2. But California law does not require you to sign the paycheck to be treated as an employer for certain purposes, and that gap between what business owners assume and what the law actually says is where this kind of exposure comes from.
Why This Matters Right Now
Staffing arrangements are common precisely because they let a business scale labor up or down without taking on the full administrative burden of hiring. That value proposition depends on a clean division of responsibility: the agency handles employment paperwork and pay, the client business handles the work itself. In reality, California wage and hour law was written to prevent businesses from using that division to avoid responsibility for the conditions workers face on-site.
The state has an obvious policy interest here. If a worker's paycheck is inaccurate or their break was skipped, it usually happened because of decisions made at the location where the work was performed, not decisions made at the staffing agency's back office. Lawmakers and courts have responded by making sure a business cannot always outsource its full legal exposure just by routing a worker's pay through a third party.
Can My Business Be Liable for a Staffing Agency Worker's Wage Claim?
Yes, and there are two separate legal paths that can lead there. The first is common law joint employment. Under the California Supreme Court's decision in Martinez v. Combs, an entity "employs" a worker if it exercises control over the worker's wages, hours, or working conditions, if it permits the worker to work, or if it otherwise creates an employment relationship under ordinary common law principles. A business that sets the worker's schedule, supervises their tasks, controls when they take breaks, or directs their day-to-day work can satisfy this test even though the staffing agency issued the paycheck.
The second path is statutory, and it was written with exactly this situation in mind. Labor Code section 2810.3 makes a "client employer" that obtains workers from a "labor contractor," a term that covers many staffing and employment agencies, share civil legal responsibility with that agency for the payment of wages owed to the worker and for any failure to secure valid workers' compensation coverage. The statute generally applies to client businesses that use 25 or more workers total, including those supplied by labor contractors, or that use 5 or more workers supplied by labor contractors at any given time, though the exact thresholds and exceptions should be confirmed against your business's specific facts. Lawmakers passed this statute because client businesses were increasingly using staffing arrangements to distance themselves from wage violations happening on their own sites, and the statute closes much of that gap.
What Is a "Client Employer" Under Labor Code 2810.3?
A client employer, in plain terms, is the business that obtains workers through a staffing or labor contractor to perform labor within its usual course of business, as opposed to a business that occasionally uses an outside vendor for a specialized, unrelated task. If your business regularly fills roles that are part of your normal operations using agency-supplied workers, whether that is warehouse staff, administrative support, or production line labor, you are likely operating as a client employer under this framework, and the statute's shared liability provisions can reach your business directly.
Does Misclassification Reach My Business Too?
It can. If the staffing agency issued 1099s to workers who should have been classified as W-2 employees under California's ABC test, first adopted by the California Supreme Court in Dynamex Operations West, Inc. v. Superior Court and later codified at Labor Code sections 2775 through 2787, the resulting wage claims (unpaid overtime, missed break premiums, unreimbursed expenses) can reach any business that exercised meaningful control over the worker, not only the agency that issued the tax form. If your managers set the worker's schedule, supervised their performance, and treated them functionally like one of your own employees, that level of control can support a claim that your business was a joint employer regardless of how the agency classified the worker on paper.
This is also where employment claims beyond wage and hour can enter the picture. Discrimination, harassment, and retaliation claims under the Fair Employment and Housing Act can sometimes reach a client business that exercised sufficient control over a worker's day-to-day employment, even when that worker was formally employed by the staffing agency. Whether that theory applies to your specific facts depends heavily on the degree of control your managers actually exercised, and that analysis should be done by an attorney familiar with your operations, not assumed one way or the other.
Does My Staffing Agreement Protect Me if It Has an Indemnification Clause?
It might, but only to the extent it was drafted well and the agency actually has the resources to make good on it. Indemnification and hold-harmless clauses in a staffing or services agreement can require the agency to defend your business and reimburse you for costs tied to claims arising from its own conduct, such as payroll errors or misclassification decisions the agency made unilaterally. A well-drafted clause is a real asset when a claim arrives.
That said, an indemnification clause has real limits. If the agency disputes its obligation to indemnify you, enforcing that clause can itself become a breach of contract dispute, separate from defending the underlying wage claim, and that dispute is resolved in court or arbitration like any other business litigation matter. An indemnification clause is also only as good as the agency's ability to pay. A judgment-proof or underinsured staffing agency cannot make you whole no matter how favorable the contract language looks on paper. That is why it matters to confirm your agreement requires the agency to carry adequate insurance and workers' compensation coverage, and ideally gives you audit rights to verify that coverage stays in place, before you sign, not after a lawsuit names you.
Statutory liability under Labor Code section 2810.3 adds another wrinkle. Because that statute is designed to protect workers, a private indemnification agreement between your business and the staffing agency generally cannot eliminate the shared liability the statute creates as to the worker, even though the same agreement may still control how the two businesses sort out reimbursement between themselves afterward.
What NOT to Do
Do not assume your staffing agreement alone insulates your business from a wage and hour claim. Do not direct detailed day-to-day supervision of agency-supplied workers without understanding how that level of control affects your legal exposure. Do not ignore a complaint or demand letter on the assumption the agency will handle everything, since your business may have separate obligations and deadlines to respond to directly. Do not attempt to renegotiate or alter the indemnification terms with the agency after a claim has already been filed without counsel involved, and do not let the agency's certificate of insurance or workers' compensation coverage lapse without immediate follow-up.
Documents to Gather Before You Call an Attorney
Locate the staffing or services agreement, with particular attention to the indemnification, insurance, and control-of-work provisions. Gather records showing how many hours the worker spent at your site, who supervised them, and how schedules and assignments were communicated. Pull any direct correspondence between your managers and the placed worker, along with the agency's certificates of insurance and workers' compensation coverage. Keep the complaint, demand letter, or Labor Commissioner notice in one place, since the specific allegations will shape how quickly your business needs to respond.
When to Bring in an Attorney
Contact an attorney as soon as your business is named in a demand letter, PAGA notice, or lawsuit tied to a staffing agency worker, even if you believe the agency should be the one to answer for it. An attorney should also review any staffing or services agreement before your business signs it, to confirm the indemnification and insurance language actually protects you and to assess whether your business's use of agency workers could trigger client employer status under Labor Code 2810.3. Waiting until after you are served removes options that were available earlier, including the ability to negotiate better contract terms with the agency going forward.
The Takeaway
Using a staffing agency does not automatically shield your business from wage and hour liability. California law recognizes that more than one business can employ the same worker, and a client business that supervises, schedules, or controls agency-supplied labor can be named directly under common law joint employment principles or under Labor Code section 2810.3's shared liability rules. An indemnification clause with the agency can help you recover costs after the fact, but it will not necessarily stop a worker from naming your business in the first place, and its value depends entirely on how it was written and whether the agency can actually pay.
Talk to LawPLA About Your Business's Exposure
If your business was named in a lawsuit tied to a staffing agency worker, or you want your staffing agreements reviewed before the next renewal, the sooner you get counsel involved, the more options you have to protect your company. LawPLA works with California business owners statewide to defend against employee lawsuits and to negotiate agreements that actually hold up when a claim arrives. Call our office at 213-293-7881 or reach us through our contact page to discuss your situation.