New Consequences for Misclassification of Independent Contractors

California has severely increased the penalties for misclassification of employees as independent contractors. All business owners who hire independent contractors need to pay attention to this change in the law.

The following is from the California State Bar's Corporation's Committee of the Business Law Section.

As of January 1, 2012, the State of California enacted legislation imposing heightened penalties on employers that misclassify employees as independent contractors. SB 459 added Sections 226.8 and 2753 to the California Labor Code. As a result, California now imposes a civil penalty ranging from $5,000 to $15,000 for each willful violation and from $10,000 to $25,000 where the employer has engaged in a “pattern or practice” of willful misclassification, in each case in addition to back pay and wages owed to misclassified workers. Under California Labor Code §226.8(a)(1), a willful misclassification is one that is “voluntary and knowing.”

In addition to the heightened monetary penalties, the new law also requires any employer found to have violated the law to place a notice on such employer’s website for one year, accessible to both employees and the general public, containing a statement that: (a) the employer has committed a serious violation of the law by willfully misclassifying employees; (b) the employer has changed its business practices to prevent future violations; (c) any employee who believes he or she is misclassified may contact the California Labor and Workforce Development Agency at the mailing address, e-mail address, or telephone number of the agency, as provided in the notice; and (d) notice is being posted pursuant to a state order.

Note also that under Section 2753, a person who, for money or other consideration, knowingly advises an employer to treat an individual as an independent contractor to avoid employee status for that individual shall be jointly and severally liable with the employer if the individual is found not to be an independent contractor. The foregoing does not apply to persons providing advice to their employers or attorneys authorized to practice law in California or another United States jurisdiction who provide legal advice in the course of the practice of law.