A good doctor looks for symptoms, and patterns in the symptoms, to diagnose and treat illness, right?  So allow this humblest of Juris doctors to do the same with that self-mutilating patient of ours, California.

California saw a steady stream of business leaving for better climates over the last several years.  It even got so bad that Governor Rick Perry traveled all the way from Texas to encourage the flow of businesses and employers from the Golden State to the Lone Star.  Later, California lost Toyota to Plano, Texas, along with its 2000 jobs.  Now, it looks like Tesla decided to shock California by electing Nevada as the state to house its factory and 6,500 high-tech manufacturing employees.

Why is this happening?  Why does business after business, employer after employer, ranging from low-tech to high, want to leave California?  Oh yeah… take a look at the bill signed by Governor Brown this past Sunday: AB 1897.

AB 1897, provides that when one entity contracts with another entity to provide labor, both entities shall be liable for the labor law violations (and failure to secure workers’ compensation insurance) of the actual employer.

So if Company A provides labor to Company B, but Company A failed to adequately insure for workers’ compensation, or provide proper payment of wages, Company B “shall share with [Company A] all civil legal responsibility and civil liability for all workers supplied by [Company A].”

Fortunately, the law does provide some exemptions, including those entities that hire fewer than 5 workers through a labor provider company, and where there are fewer than twenty-five employers/workers provided for the company.  However, if you’re on the bigger side of business, you are suddenly providing insurance for the failures of any company with which you contract for labor.

Now, one might ask, if you have to investigate, insure, and supervise the company you just hired to handle all the HR stuff for you, why did you hire them at all?  AB 1897 provides, effectively, that the employer cannot escape the administrative cost of complying with all labor laws by contracting compliance to another entity.  In other words, dear readers, the cost of doing business in California has just gone up once again, and the incentives for moving out have gone up with it.