New Law Imposes Penalties for Classifying Employees as Independent Contractors

In an attempt to crack down on the misclassification of employees as independent contractors, earlier in the month, California Governor Jerry Brown signed into law SB 459.  SB 459, which becomes law January 1, 2012, adding Sections 226.8 and 2753 to the Labor Code, prohibits willful misclassification of individuals as independent contractors.

The new law provides for penalties for a “willful misclassification”:

“Willful misclassification” means avoiding employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor.
The bill also prohibits employers from charging a misclassified worker a fee or deducting from his pay for any costs related to his employment i.e., equipment, services, repairs, or fines.  Employers who violate the new law will be fined between $5,000-$15,000 for each violation, in addition to any other penalties or fines.  Employers engaged in a “pattern or practice” of violations are subject to fines up to $25,000 for each violation.

For more information about that factors considered in determining whether a worker qualifies as an independent contractor click here.

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 notice must contain the following information:

(1) That the Labor and Workforce Development Agency or a court, as applicable, has found that the person or employer has committed a serious violation of the law by engaging in the willful misclassification of employees.
(2) That the person or employer has changed its business practices in order to avoid committing further violations of this section.
(3) That any employee who believes that he or she is being misclassified as an independent contractor may contact the Labor and Workforce Development Agency. The notice shall include the mailing address, e-mail address, and telephone number of the agency.
(4) That the notice is being posted pursuant to a state order.

SB 459 reinforces the importance of appropriately classifying independent contractors under California and federal employment laws.
If you or someone you know owns or manages a California company, make sure your employees are properly classified in accordance with the most recent applicable laws.  The Orange County Employment Law firm of Don Ho, LLP can assist business owners in determining whether employees are properly classified as independent contractors.

For the full text of SB 459 please click here.

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