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California Cracks Down on Worker Misclassification

September 20, 2011 Written by: Written by Mike Rogers, Chief Compliance Officer

If you perform work in California, be aware that the penalties for willful misclassification of a worker as an independent contractor rather than an employee are about to increase substantially. Each violation can carry a fine between $5,000 and $25,000.

Another point to note in SB 459 is that liability is not limited to employers.  The language states that “any person” who willfully misclassifies someone as an independent contractor can be fined. This means there is potential for a manager who misclassified a worker to be held liable and fined.

Looking at the bill more in-depth, it provides that it is unlawful for any person or employer to willfully misclassify an individual as an independent contractor or to charge that individual a fee or make any deductions from that individual’s compensation that would have been prohibited were that individual not an independent contractor.

“Willful misclassification” is defined as “avoiding employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor”.  This language is somewhat ambiguous, and California’s criteria for establishing whether a worker is an independent contractor rather than an employee is not cut and dried. If your clients have questions regarding classification of any of their workers, they should seek legal advice.

The bill calls for penalties of $5,000 to $15,000 for each violation. Every deduction or fee charged to a willfully misclassified independent contractor may result in a separate penalty. Furthermore, if it is determined either a court or the California Labor Workforce Development Agency that the person or company has engaged in a pattern or practice of violations, the penalties increase to $10,000 – $25,000 per violation.

Employers who are found to have violated the law must post a notice prominently on their websites, if they have one, that informs all employees and the general public that they have been found to have  willfully misclassified employees, and advising any worker who believes he or she is being misclassified to contact the Labor Workforce Development Agency. Employers who do not have websites must post the notice in the workplace.