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UPDATE: New Bill Increasing Penalties for Willful Misclassification of Individuals as Independent Contractor Signed

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

Governor Jerry Brown signed California Senate Bill 459 into law on October 9, 2011. This bill becomes effective on January 1, 2012. The purpose of the bill is to prohibit employers from willfully misclassifying individuals as independent contractors and it imposes steep penalties for doing so.

Under existing law employers have different obligations to individuals depending on whether the person providing services is an independent contractor or an employee. Therefore, in order for a an employer to lawfully fulfill its duties on issues such as wages and other compensation, working hours, workers’ compensation, labor code violation actions, employment contracts, and working conditions standards it is imperative that individual are correctly classified.

Generally, and independent contractor is “any person who renders service for a specified recompense for a specified result, under the control of his principal as to the result of his work only and not as to the means by which such result is accomplished.” California Labor Code section 3353.

Senate Bill 459 imposes penalties for first time offenders of $5,000 to $15,000 per violation, and increases these numbers by an additional $10,000 each if an employer repeatedly willfully misclassifies individuals.

In addition to employers being held responsible for proper classification, any person (other than an attorney or employee providing advice to the employer) who aids in willful misclassification can be held jointly and severally liable for doing so. This bill also places requirements relating to the preservation of records, notice posting, and providing of forms to independent contractors on employers.

How Does This Affect Your Business?

Willful misclassification of individuals as independent contractors could prove to be extremely costly to employers. Proper classification of all individuals is a crucial first step to ensuring compliance with all employer/employee related issues. Without doing so it is virtually impossible to properly abide by governing rules, such as wage and hour laws, as well as the others listed above. Even more than encouraging legal compliance with existing laws, this new bill makes willful misclassify alone punishable.

If your company works with independent contractors and would like to speak with an expert to ensure individuals are properly classified, please contact us at info@mitzelgroup.com.