Your Business Uses Staffing Agencies or PEOs. Here's When You Become a Joint Employer Under California Law
Wage & Hour Defense
You hired a staffing agency to handle your seasonal workers. You signed up with a PEO like TriNet or Justworks to manage payroll and HR compliance. You brought in a subcontractor whose workers operate on your floor every day. In your mind, the legal responsibility for those workers belongs to them, not you.
California sees it differently.
Joint employer liability in California means two separate businesses can both be held responsible for the same wage violations, discrimination claims, and labor code penalties. If your business exercised meaningful control over the workers' conditions of employment or had sufficient involvement under the applicable legal standard, you could face joint employer allegations alongside the agency.
This guide explains exactly how California determines joint employer status, which relationships put you at the most risk, and what you can do right now to limit your exposure.
Key Takeaways
Joint employer liability in California can attach even without direct hiring or payroll control; the potential to control workers' work is often enough.
Labor Code §2810.3 can create statutory obligations for businesses that meet specific employee-count and labor-contractor thresholds.
The ABC test means independent contractor labels do not determine legal status; the actual working relationship does.
Joint employers are not automatically vicariously liable for each other's conduct under the Serrano/Ducksworth defense, but that protection requires documented contractual separation.
Indemnification provisions, compliance warranties, and limited managerial involvement are your three primary risk reduction tools.
What Is a Joint Employer in California?
A joint employer relationship exists when two or more businesses are treated as co-employers of the same workers under California law, making both potentially liable for labor code violations involving those workers.
California takes "an extraordinarily expansive view on what constitutes joint employment, often lowering the bar for what constitutes sufficient control by a business over an employee's work."
That broad standard has two direct consequences for California employers:
You can become a joint employer without intending to, simply by directing third-party workers' daily tasks
Once joint employer status is established, your exposure includes uncapped economic damages, waiting time penalties, PAGA civil penalties, and attorneys' fees payable to the plaintiff
The three most common arrangements that trigger joint employer status are staffing agency relationships, PEO arrangements, and franchise or vendor structures where workers regularly operate at your location under your supervision.
The Three Legal Tests California Courts Apply
There is no single joint employer test in California. Courts and agencies apply different frameworks depending on the statute at issue and the type of claim. This is exactly where employers get caught complying with one standard while unknowingly failing another.
1.
The "Suffers or Permits" Standard
An employer "suffers or permits" work if it knew or should have known work was being performed and had the power to prevent it. California courts examine whether the business had the ability to exercise control over the employment relationship, even if direct supervision was limited.
2.
Labor Code Section 2810.3 — The Statutory Trap
This is the one most California employers never see coming.
Labor Code §2810.3 applies to businesses that meet the statutory employee-count requirements and use workers supplied by a labor contractor. The statute creates responsibility for certain wage-and-hour violations involving those workers.
You do not have to have done anything wrong. If the staffing agency failed to pay proper overtime or missed meal break premiums, you can be on the hook alongside them.
3.
The ABC Test for Independent Contractors
Under California's AB 5, any independent contractor relationship is presumed to be an employment relationship unless all three prongs of the ABC test are satisfied:
Prong | What It Requires |
|---|---|
A | The worker is free from your control and direction in performing the work |
B | The work performed is outside your usual course of business |
C | The worker is customarily engaged in an independently established trade, occupation, or business |
Fail any single prong, and the worker is legally your employee with full employer liability for wage-and-hour compliance attached.
Watch: John Fagerholm on why California employers are getting caught off guard by labor law exposure they didn't know they had. Why California Employers Are Being Left Behind — DefendMyBiz YouTube
The Key Distinction: Liability Is Not Always Automatic
Being a joint employer does not automatically mean you are liable for everything the other employer did.
California courts have recognized limits on automatically attributing one employer's independent violations to another joint employer. Cases such as Serrano v. Aerotek and Ducksworth v. Tri-Modal Distribution Services highlight that joint employer status does not automatically establish liability for every act of another entity.
The critical implication for employers: your defense is stronger when you have clear contractual separation, documented limited involvement, and written indemnification provisions that require the agency or PEO to stand behind their compliance obligations.
What Puts You at Highest Risk Right Now
Not all third-party worker arrangements carry the same level of exposure. The following fact patterns pose the greatest joint-employer risk under current California law.
Your managers direct the day-to-day work.
If your supervisors are telling staffing workers what to do, when to do it, and how to do it, you have moved well past being a neutral client. Managerial involvement is one of the most significant factors courts examine when evaluating joint employer status.
Workers are doing your core business.
The ABC test's Prong B requires that the contractor's work be outside your usual course of business. If the person building your product, serving your customers, or doing the work you sell is classified as an outside contractor, that prong fails.
Your headcount exceeds 25, including agency workers.
Labor Code §2810.3 applies to employers with 25 or more employees who use five or more labor contractor workers. Many employers cross this line during seasonal surges without realizing the statutory liability has attached.
Your PEO contract does not include wage-and-hour compliance warranties.
A PEO that cannot demonstrate California labor law compliance across the workers they administer leaves you exposed under both the "suffers or permits" standard and §2810.3.
The agency workers operate primarily at your location.
Proximity and physical integration are factors courts examine. Workers embedded in your operations, using your equipment, working your hours, present a stronger joint employer case than workers completing discrete off-site projects.
Protecting Your Business: What to Do Before a Claim Arrives
Proactive steps taken now cost far less than the litigation that follows an unaddressed exposure. Weintraub Tobin attorneys, in a May 2026 analysis on PEO and staffing risks, emphasized that reviewing key contract provisions before entering these relationships is the most important step California employers can take.
1.
Audit your third-party relationships.
List every staffing agency, PEO, contractor, and vendor whose workers operate at your location or do work integral to your business. For each one, answer two questions: who controls how their work is performed day to day, and who is responsible when they get it wrong.
2.
Review your contracts for three specific provisions:
Indemnification language requiring the agency or PEO to hold you harmless for their wage and hour violations
Representations of California labor law compliance, including meal and rest breaks, overtime, and wage statements
Your right to audit their payroll records on request
3.
Limit your managers' involvement with third-party workers.
Channel performance concerns through the agency in writing rather than directing workers directly. The more your managers act as supervisors of agency workers, the stronger the joint employer case becomes.
4.
Apply the ABC test before every new contractor engagement.
If the contractor's work is central to your operations, or if they work exclusively for you, the classification is legally vulnerable before the first invoice is paid.
5.
Document advance notice of any cancellations or changes.
This applies both to staffing arrangements and to the reporting time pay obligations that can follow when workers show up expecting a full shift.
For a broader picture of how wage and hour claims escalate once filed, see California Expense Reimbursement: What Labor Code §2802 Requires from Employers and Defeating Wage and Hour Class Actions in California: An Employer's Defense Guide.
The First Few Hours of Claim
When a joint employer claim lands on your desk, the first 48 hours matter.
Plaintiff attorneys in these cases often file against both entities simultaneously, alleging each is responsible for the full scope of violations. The demand letters are typically structured to maximize exposure, including PAGA penalties stacked per employee per pay period, waiting-time penalties under Labor Code §203, and attorneys' fees.
The real exposure, once properly analyzed, is rarely the number in the demand letter. But getting to that analysis requires early engagement with an attorney who knows where California courts draw the lines on joint employer liability.
DefendMyBiz represents California employers only. We do not take employee cases. When you bring us a joint employer claim, we assess your actual exposure based on your specific contracts and operational facts, challenge any vicarious liability theories that do not hold up under Serrano and Ducksworth, and build your defense around the documented separation between your business and the other entity.
If you are using a staffing agency or PEO and have not had your contracts reviewed, that is where the DefendMyBiz wage-and-hour defense team begins.
Already facing a joint employer claim or Labor Commissioner complaint involving a staffing agency or PEO? Contact DefendMyBiz for a free 15-minute consultation.
Frequently Asked Questions
What is a joint employer in California?
Does using a PEO protect me from employment claims in California?
What is Labor Code Section 2810.3, and does it apply to my business?
Can a joint employer claim become a PAGA action?
Am I liable for everything my staffing agency did wrong?
Disclaimer: The above content is for informational purposes only. This is not legal or tax advice. Laws, IRS guidance, and withholding requirements can change, and outcomes depend on specific facts. You are advised to contact a qualified attorney for any legal advice.
