Are You a Farm Labor Contractor? The Answer May Surprise You.
If your workers are performing duties on property not owned by the entity paying them, then the entity with the payroll account is a farm labor contractor.
Prior to state or federal involvement, a market existed within the agriculture industry for those who could gather a crew of workers and bring that crew to various farmers to help with certain tasks – be it harvest, pruning or general labor. The farmer would pay the “crew boss”, and it was the responsibility of the crew boss to then pay the workers. However, this second payment, the one to the workers, didn’t always reach the folks who did the actual work. When the workers complained or brought charges, the crew boss was often gone. Into the wind. After receiving enough complaints of this practice and then being unable to track down the perpetrator, the United States Department of Labor created the Farm Labor Contractor registration program. Washington State later adopted its own set of rules, known as the Washington Farm Labor Contractor Act (the “Act”), modeled after the federal registration program.
The policy behind this registration program is to stop those who do not pay their workers and then can’t be found for prosecution. Under the federal program, if you are an “agricultural employer” and either own or lease land (thus allowing yourself to be found by authorities), you do not need to register as a farm labor contractor. Agricultural employers in Washington held the belief that the Washington registration program had the same exception until the Washington State Supreme Court, on March 3, 2016, issued a decision to the contrary. This case, Saucedo v. John Hancock Life & Health Insurance, has significantly impacted almost every agricultural employer within the state of Washington.
For example, let’s say you own two orchards. The orchards are next to each other, yet are held in two separate entities: Farm A, LLC and Farm B, LLC. All employees are processed under Farm A, LLC. If you operate under this structure, or any similar structure, then Farm A, LLC is considered a farm labor contractor, and must apply for a license. If your workers are performing their duties on property not owned by the entity that is paying them, the entity with the payroll account is a farm labor contractor and must register with L&I.
When, why and how this happened – The Saucedo Case
The Saucedo case centered on a management company, which was subleasing an orchard, and receiving a fee for its management services, including providing labor to the landlord. The Court held that the management company violated the Act by not obtaining a farm labor contractor license. The Court also found that property owners and other involved parties were liable for damages for not taking affirmative steps to ensure that the management company was a licensed farm labor contractor.
Saucedo was brought by a group of agricultural employees against the owners, lessee and sublessee/manager of orchards where they worked, alleging—among other things—failure to register under the Act. In a unanimous holding, the Court found in favor of the employees, departing from guidance issued by the Washington Department of Labor & Industries (“L&I”). The Court held that the unlicensed sublessee/manager of the orchard, the lessee, and the orchard owner were all jointly liable for $1,004,000 in damages as a result of the unlicensed operations.
The Saucedo decision impacts nearly all farming activities in Washington State. The Court’s expansive interpretation of the Act requires registration as a farm labor contractor whenever (i) “recruiting, soliciting, employing, supplying, transporting, or hiring agricultural employees” takes place, including under many management agreements, vertically integrated and other related third party operations, paymaster agreements, and even leases and (ii) the agricultural employees will be performing work on land that is not owned by the exact company from which the employee receives his or her paycheck.
As it stands, if you do not own the property on which your employees are present, you are a farm labor contractor and are required to have first received a license prior to performing agricultural activities, or face substantial penalties. Additionally, any person who uses the services of a third party for recruiting, soliciting, employing, supplying, transporting, or hiring agricultural employees—without either inspecting the FLC license issued by the Department or obtaining a written representation from the Department that the third party is a licensed farm labor contractor—will be held liable for all penalties.
Again, if your workers are performing their duties on property not owned by the entity that is paying them, the entity with the payroll account is a farm labor contractor and must register with L&I. Alternatively, you could run two payrolls: one for Farm A, LLC and another for Farm B, LLC. However, in our experience with clients, dual payrolls creates its own issues as employees have to track their hours between the two farms. Plus, your payroll duties are doubled. Additionally, it creates the appearance of noncompliance to the outside world, meaning that this practice may not avoid an audit by L&I.
Damages for violations of the Act are substantial and include a fine of $500 per employee, per violation. As part of its compliance requirements, the Act states that any entity or person acting as farm labor contractor:
Must carry their license with them, including a copy of the license in all vehicles used for farm labor contracting purposes and;
Must have all employees sign a statement acknowledging they are aware the entity is a farm labor contractor and the employees have specific rights under the Act.
Therefore, for purposes of the penalties, if a party is found to be an unlicensed farm labor contractor—even with no other wrongdoing—both rules listed above will have been violated, resulting in a claimed fine/penalty of $1,000 per employee.
While not directly implicated by the Saucedo decision, another important area of concern is vehicles and transporting employees. Under a previous Supreme Court decision, an employee who is paid additional compensation because he or she drives the vehicle that transports workers—even if such additional compensation is merely cost reimbursement—not only is the employer a farm labor contractor, but the employee driving the vehicle is also a farm labor contractor as he or she is transporting employees “for a fee.”
The farm labor contractor license application can be found on the L&I website, and includes a packet of information and checklist to assist with the process. The application contains:
The main application form;
Compliance certificate for the Department of Revenue;
Compliance certificate for the Department of Employment Security;
Compliance certificate for the IRS;
Vehicle information and insurance certificate;
And a filing fee.
There are also necessary items not listed on the checklist – If these items aren’t included in the application packet, you will experience delays and possible rejection of the application, requiring you to start over.
Here are a few items we’ve learned over the years:
(a) On the main application, you are asked for information related to the owners of the applicant company. If your company is a subsidiary of another company, you must also list the owners of the subsidiary owner/entity (and so on and so forth), until you have listed the real live persons involved in each layer of the corporate structure.
(b) The application packet includes IRS form 8821 which must be turned into the Internal Revenue Service. This allows the IRS to review the applicant’s tax returns. However, the form provided by L&I lists tax years 2010-2014. This is not updated and needs to be corrected to 2017, prior to faxing the form to the IRS.
(c) Also not present on the instructions is the fact that the IRS needs not only Form 8821 to be submitted for the applicant company, but also all of the owners of the applicant company.
JDSA has been successful in negotiating to provide one or more majority shareholder’s information only, avoiding the headache of tracking down dozens of owners for larger companies.
The application process is only the beginning.
Once the license is received, the Company must maintain compliant business practices under the Act. Your foremen and all other managers should receive training on the Act, prior to performing any farm labor contractor activities such as hiring or transporting workers.
The first—and arguable the most important step—is to have each and every employee complete and sign the Farm Labor Contractor Agreement, which L&I provides after the license is issued. The farm labor contractor keeps this agreement and other records in each employee’s file for no less than 3 years.
These and other requirements found in the Act must be maintained as part of your regular business practices.
The Saucedo Court’s expansion of the Washington Farm Labor Contractor Act requires all agricultural operations to carefully evaluate their business structure in the context of farm labor contracting. This decision greatly increases the exposure for anyone who employs agricultural workers, whether directly, or through almost any other arrangement.
JDSA Law attorneys have been assisting with farm labor contractor related issues and the application process for many years, before the Salcedo decision was issued.
Lindsey Weidenbach is an attorney practicing with JDSA Law
[Content provided in this article should be used for informational purposes only and is not intended to be a substitute for professional advice. Always seek the advice of a relevant professional with any questions about any legal decision you are seeking to make.]