News, Articles & Updates

New Bill Would Increase Penalties for Willful Misclassification of Individuals as Independent Contractor

Employers Must Ensure that Their Classification of Employees or Independent Contractors is Accurate

Classification of an individual as an employee or independent contractor continues to be an important topic for employers, especially because a proposed bill could impose high penalties for misclassification.

The California legislature recently sent Senate Bill 459 to Governor Brown for his signature, and if signed, this bill would prohibit an employer from willfully misclassify an individual as an independent contractor.

The bill defines willful misclassification as, “avoiding employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor.”  This bill would further implement civil penalties for willful misclassification.

A first time violator would face a penalty ranging from $5,000 to $10,000 per violation.  However, employers who repeatedly violate the law could pay up to $25,000 per violation.

This bill would not only impact employers, but also an individual who knowingly advises an employer to treat a person as an independent contractor to avoid employee status.  That individual would be held jointly and severally liable if that person was found to not be an independent contractor.  However, this provision would not apply to advice supplied by an attorney or by people within a company.

SB 459 is not the only recent development in this area of employment law.  In September, the Internal Revenue Service (IRS) and the Department of Labor (DOL) signed a memorandum of understanding meant to decrease the number of employers misclassifying their employees as independent contractors.

The agencies plan on sharing information and improving coordination efforts in order to make sure employers are not avoiding their obligation to provide employment protections by misclassify their employees.

How Does This Affect Your Business?

Although proper classification of employees is always important, SB 459 and the recent actions by the IRS and DOL would make it even more essential for employers to make sure they are not misclassifying employees.  Further, if SB 459 becomes law, it would impose high fines on employers for willful misclassification.

If your company works with independent contractors and would like to speak with an expert to ensure they are properly classified, please contact us at

Recent Happenings in California Employment Law

California Employers Must Comply with New Laws in Effect

The California Legislature and Governor Jerry Brown have been busy this month passing and signing legislation that impacts employers in the state.

On September 7, 2011, the Governor signed AB 240.  This bill permits an employee to recover liquidated damages from a complaint brought before the Labor Commissioner that alleges underpayment of minimum wages.  The previous law only permitted employees to recover liquidated damages in a court action.

The Governor also signed SB 559 on September 6, 2011.  This bill prohibits employers from discriminating on the basis of an individual’s genetic characteristics.  On the same day, the Governor signed SB 117, a bill focusing on gender and sexual orientation discrimination.  This bill prohibits a state agency from entering into a contract for $100,000 or more with a contractor who discriminates against employees with same-sex spouses or domestic partners.

Many other bills that could have an impact on California employers have been presented to Governor but still await his signature.  AB 267 is one such bill.  If signed, it will make void any forum selection or choice of law clause in an employment contract where an employee, as a condition of obtaining or continuing employment, has to agree to the forum or law outside of California for any employment-related disputes arising in California.

AB 1396 also awaits the Governor’s signature.  This bill would create the requirement that employers have a written commission agreement for employees performing services in California and who are paid on a commission basis.  This written agreement would need to include how commissions are computed and paid.  Compliance with this requirement would not be required until January 1, 2013.

The California Legislature also presented to the Governor a bill addressing bereavement leave.  This bill, AB 325, if signed would require employers to grant an employee’s request to take up to three days of unpaid bereavement leave.  It would not apply to an employee covered by a valid collective bargaining agreement that already provides for bereavement leave.  Another bill for the Governor to sign is AB 22, which would prohibit the use of credit reports for employment purposes except in a limited number of circumstances.

The Mitzel Group, LLP will keep you updated on the status of these bills and you can contact us for further information on these developments at