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Legal Alert: California's New Law Imposes Stiff Penalties on Employers who Misclassify Employees as Independent Contractors

Written by Ford Harrison Wednesday, 12 October 2011 23:00

Executive Summary

California's Governor Jerry Brown recently signed into law a bill that will dramatically increase penalties for employers who willfully misclassify employees as independent contractors. The new law compels a $5,000 to $25,000 fine for each violation and also prohibits companies from charging fees or making any other deductions from the pay of independent contractors who have misclassified.

An Employee By Any Other Name…

Designed to prevent the use of "independent contractors" in place of employees, SB 459 creates a new section in California's Labor Code. The new section makes it unlawful (1) to willfully misclassify an individual as an independent contractor, and (2) to charge misclassified independent contractors fees or make deductions from their compensation for items such as goods, materials, maintenance, licenses, or repairs. An employer who willfully misclassifies an independent contractor may be subject to a penalty of $5,000 to $15,000 for each violation, and, if the employer is found to have engaged in a "pattern and practice" of misclassifying employees as independent contractors, $10,000 to $25,000 for each violation.

In addition, any employer found to have violated the new law will be required to post a notice to employees on its internet site, or, if it does not have an internet site, another prominent location. The notice must provide the following information: (1) the employer was found to have violated the law; (2) the employer has changed its practices; (3) the employer was ordered to post the notice; and (4) if any employee wishes to complain about the employer's practices, the employee may contact the Labor and Workforce Development Agency (with address provided).

Further, any licensed contractor who has violated the new law will be required to transmit to the Contractors' State License Board a copy of the court or agency determination of the violation. The determination will serve as the basis for a disciplinary action by the license board against the licensee.

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