Governor Brown Expected to Sign California Law Providing Civil Penalties for the Misclassification of Independent Contractors

The California legislature recently passed Senate Bill 459, which provides hefty penalties for any individual or employer that willfully misclassifies an employee as an independent contractor.

The law, if signed, will impose penalties between $5,000 and $15,000 for each willful misclassification of an independent contractor. In the event that an employer is found to violate the law, the employer will be required to display prominently on its website (or if the employer doesn’t have a website, then in an area accessible to all employees and the general public) a notice that provides the following information: (a) that the employer has committed a serious violation of the law by engaging in the willful misclassification of its employees; (b) that the employer has changed its business practices to avoid committing further violations; (c) that any employee who believes he or she is being misclassified as an independent contractor may contact the Labor and Workforce Development Agency (providing the contact number of the agency); and (d) that the notice is being posted pursuant to a state order.

According to those in support of the law,Californiahas an underground economy of independent contractors that are engaging in a systematic abuse of the state’s tax laws, regulations, and labor laws. Supporters believe that this abuse is costing the state between $60 and $140 billion in revenue each year. Those who opposed the law argued that there is no uniform, definitive test provided by state agencies to assist employers in determining independent contractor status and that there are already laws in place that provide the state with opportunities to enforce violations.

Regardless of whether or not SB 459 is signed into law, employers should be diligent about auditing their independent contractors to ensure they are working according to the terms of their contracts. Because the fines are so large, this is an HR issue where it is very helpful to contact an attorney with experience in employment law to review your current roster of independent contractors and work with you on the proper classifications.