Small Slip Creates Large Penalties!
David Enquist from our Moses Lake, Washington office attended a fruit industry seminar yesterday and even though this is specific to Washington State, the potential penalties can apply in many other states. Here is his report on the meeting:
I attended the 2014 Fruit Industry Seminar sponsored by the NSAC on Thursday and thought I’d pass a presentation topic related to Farm Labor Contract Law.
This topic is specific to Washington State as the federal farm labor contractor law does not have quite the quirk in it that the Washington State law does. Recently, plaintiff lawyers have been exploiting the vague definition of a “farm labor contractor” as a result of the Courts recently issued decisions that have created extraordinary new risks for Washington farmers.
Basically, a “farm labor contractor” is one who engages in recruiting, soliciting, employing, supplying, transporting, or hiring agricultural employees for a fee, which a few exceptions. If one does this, they need a farm labor contractor license. If one is in this business without this license, there is a mandatory minimum penalty of $500 per person per violation. Failure to have a license is a single violation applicable to all employees and failure to provide written notice of terms of employment on a form approved by L&I is a violation, therefore, any person or entity who acts as an unlicensed farm labor contractor is automatically subject to a $1,000 minimum penalty per employee with a statute of limitations of three years.
The big issue is any person who knowingly uses the services of an unlicensed farm labor contractor is also liable to the same extent as the farm labor contractor, and not knowing that a license is required is not a defense.
A common occurrence was brought up where one entity share employees with another (typically related entities) and is reimbursed payroll and other expenses. If the reimbursement is constituted as a fee, which L&I says it might be, then a farm contractor labor license is required. Further, in Saucedo v. NW Management, NW Management farmed ~2,000 acres for an absentee land owner. They made all the decisions and were paid a flat per acre-management fee. A traditional custom farming agreement typically not considered farm labor contracting. The court saw it differently and held the management fee was a fee for farm labor contracting.
You can probably imagine the potential for big problems here and there are many unanswered questions. A good litmus test is if the person or entity name on the payroll check is different from the person or entity name that owns the land being farmed, there is probably a farm labor contracting situation that should be addressed.
Good news is getting the farm labor contract license is fairly cheap and relatively simple. If you think you may have potential exposure I highly suggest visiting with your attorney and/or accountant to determine the proper solution.
As you can see from his report, simply not having a license from the state of Washington can result in penalties of up to $1,000 per employee. This can add up fast.
Paul Neiffer, CPA
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
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