Many businesses seek to cut costs by categorizing employees as independent contractors. By doing so, they avoid additional employment costs such as benefits, worker's compensation and unemployment. Governor Brown recently Senate Bill 459 into law (among other employment bills) which makes employers liable for civil penalties of $5,000 to $15,000 for each violation of “willful misclassification” of employees as independent contractors. In addition, if it is found that the employer has a pattern and practice of misclassifying independent contractors, the penalties can increase to a minimum of $10,000 to $25,000 per violation. The new law adds Sections 226.8 and 2753 to the Labor Code.
In addition to the substantial civil penalties, employers who violate the law are also required to post a notice on their website, or if the employer does not have a website they must post it in an area available to employees and the general public, for one year about the violation.
The new law also
- Prohibits the willful misclassification of workers as independent contractors to avoid properly classifying them as employees.
- Prohibits charging misclassified workers any fees or making deductions from their compensation where those acts would have violated the law if the individuals had not been mischaracterized.
- Gives the Labor and Workforce Development Agency authority to assess penalties and take other action against violators, and requires it to report violators who are licensed contractors to the Contractors' State License Board; further it requires the Contractors' State License Board, once notified, to bring an action against the contractor.
- Subjects non-lawyers who advise an employer to misclassify a worker to joint and several liability with the employer.
This new law makes it of paramount importance that employers exercise caution when characterizing workers as independent contractors.
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