S.B. 459 – - Misclassification of Independent Contractors
This new law prohibits willful misclassification of individuals as independent contractors. It adds section 226.8 to the California Labor Code which specifies that it is unlawful for any person or employer to:
(1) Willfully misclassify an individual as an independent contractor (meaning the person or employer voluntarily and knowingly misclassifies an individual as an independent contractor); or
(2) Charge an individual, who has been willfully misclassified as an independent contractor, a fee or make deductions from his/her compensation for any purpose, including for goods, materials, space rental, services, government licenses, repairs, equipment maintenance, or fines arising from the individual’s employment, where any of such charges/deductions would be considered unlawful if the person had been appropriately classified as an employee.
The consequences of a violation are serious and include:
(1) If the Labor Workforce and Development Agency (“LWDA”) or a Court determines that a person or employer has violated the law, the person or employer shall be subject to a civil penalty that ranges from $5,000 to $15,000 for each violation, in addition to any other penalties or fines permitted by law;
(2) If the LWDA or a Court determines that the person or employer has engaged in or is engaging in a pattern or practice of these violations, the penalty shall be $10,000 to $25,000 for each violation, in addition to any other penalties and fines permitted by law;
(3) If the person or employer is a licensed contractor under the Contractors’ State License Law, the order of the LWDA or Court shall be transmitted to the Contractors’ State License Board, which must initiate disciplinary action against the license holder within 30 days. The disciplinary action can include disbarment;
(4) The LWDA or Court shall order the person or employer to display prominently for one year on its Web site, in an area accessible to all employees and the general public, a specified notice that includes a statement that: (a) the person or employer has committed a serious violation of the law by willfully misclassifying employees; (b) the person or employer has changed its business practices to avoid further violations; and (c) any employee who believes he or she has been misclassified may contact the LWDA. If the person or employer does not have a Web site, the notice must be physically posted in a prominent location available to the general public at each location where a violation has occurred; and
(5) The Labor Commissioner also has authority to issue a citation to assess damages and the fines specified above.
The new law also adds Labor Code section 2753 to specify that a person who, for money or other valuable consideration, knowingly advises an employer to treat an individual as an independent contractor to avoid employee status will also be in violation of the law, and subject to fines, if the person is found not to be an independent contractor. This new law is designed to deter accountants and other consultants from knowingly advising an employer to misclassify a person as an independent contractor. It does not apply to a person (such as a supervisor or manager) who provides advice to his/her employer, or an attorney authorized to practice law who is providing legal advice to the employee
WHAT TO DO NOW:
Proceed with caution when determining whether a person is an independent contractorrather than an employee. The tests that determine whether or not someone is an independent contractor are quite stringent. Misclassification can lead to significant liabilities for the employer, including tax liabilities and penalties, as well as these new fines.