California Strengthens Laws Against Worker Misclassification

November 13, 2011

To avoid overtime, taxes, and insurance obligations, unscrupulous employers are known to misclassify their employees as “independent contractors.”  The practice is illegal.  Misclassification hurts not only the worker, but requires legitimate California businesses to carry the tax and workers compensation burden of cheating employers.  California is strengthening its laws to combat misclassification and the “underground” economy. 

In a new law to take effect January 1, 2012, the legislature enacted a statute prohibiting the

 "willful misclassification" of individuals as independent contractors, as well as the practice of deducting from the paychecks of misclassified individuals any fees or other charges that could not be deducted from the paychecks of employees, e.g. for workspace, licenses and equipment.  The "willful misclassification" of an individual is defined as "avoiding employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor."

The new law, known as SB 459, also provides for the assessment of civil penalties in the range of $5,000 to $15,000 for each violation and, for individuals found guilty of a "repeated pattern or practice" of such violations, the penalty may increase to between $10,000 and $25,000 per violation.

The law imposes joint liability upon any person who, for money or other valuable consideration, knowingly advises an employer to treat an individual as an independent contractor to avoid employee status where that individual is later found to be an employee.  Excepted from this provision are persons providing advice to their employer and licensed attorneys dispensing legal advice during the course of practicing law.

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