The Cost of Employee Misclassification Just Went Up in California

If you hire independent contractors in California, your purported cost-saving might come back to bite you. Earlier this month, Governor Jerry Brown signed into law SB 459, legislation designed to crack down on the misclassification of employees as independent contractors in the state. For your reference, here’s a first look at what you need to know about the new law, from lawyers and law firms on JD Supra:

The cost of misclassifying employees just went up:

“The legislation … provides for fines of between $5,000 and $25,000, mandates certain record keeping and notice requirements, as well as provides joint and several liability for any person who ‘knowingly advises’ an employer to misclassify a worker as an independent contractor.” (From “Job Killer Act” Seeks to Eliminate Worker Misclassification in California by International Lawyers Network) 

The fine is likely just the first payment:

“Because the Labor Commissioner is empowered with enforcing the law, it is likely that aggrieved employees could bring representative actions under the Private Attorneys General Act. Such enforcement actions would likely seek not only the civil penalties described above but also penalties for other lost benefits associated with employment, such as overtime pay, minimum wage, health and vacation benefits.” (From Independent Contractor or Employee? New California Law Raises the Stakes by Manatt, Phelps & Phillips, LLP) 

The law is intended to stop employers who knowingly misclassify employees:

“[The] legislation imposes dramatic penalties on employers found to have engaged in ‘willful misclassification’ of workers as independent contractors, as well as on non-lawyer advisors who knowingly counsel to engage in such reclassification.” (From California Governor Signs S.B. 459, Dramatically Increasing Penalties for Misclassifying Employees as Independent Contractors by Schnader Harrison Segal & Lewis LLP) 

There doesn’t appear to be much room for error:

“As the California Chamber of Commerce has observed, while purportedly just going after employers who willfully misclassify workers, ‘the [final] bill still falls short of adequately protecting employers that are trying to comply with the law, yet mistakenly misclassify an individual as an independent contractor.’” (From Assault on Independent Contractor Misclassification Continues: California Legislature Passes and Sends Aggressive New Legislation to Governor Brown for Signature by Schnader Harrison Segal & Lewis LLP) 

If you insist on hiring independent contractors, make sure HR really understands SB 459:

“When determining whether an individual is an employee or independent contractor, the most important question to ask is how much control the employer maintains over the details of the work… However, the analysis is far more complex, involving a detailed analysis of a variety of factors. Therefore, employers are advised to audit their practices with the help of experienced counsel.” (From California’s New Law Imposes Stiff Penalties on Employers who Misclassify Employees as Independent Contractors by Ford & Harrison LLP) 

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