New Law Imposes Severe Penalties For Employee Misclassification
As Independent Contractors

By Roger M. Mason, Esq. and Scott A. Mangum, Esq.

In October 2011, California Governor Jerry Brown signed into law Senate Bill 459 which went into effect on January 1, 2012. SB 459 implements significant penalties for employers who misclassify employees as independent contractors. The new law is the culmination of a long battle between organized labor and employer groups.

SB 459 makes it unlawful for an employer to “willfully” misclassify an employee as an independent contractor. Under the new law, “willful” is defined as “voluntarily and knowingly;” thus an employer who voluntarily and knowingly misclassifies an employee as an independent contractor will be subject to the penalties prescribed in SB 459.

The penalties under SB 459 are severe and place a premium on proper employee classification. Employers deemed to have violated the law can face civil penalties of up to $15,000 for each instance of misclassification!

Where the employer is found to have engaged in a “pattern or practice” of willful misclassification, the employer can face fines of up to $25,000! The new law also includes a “Scarlet Letter” provision, requiring violators to post prominent notices on their company website stating that they misclassified their employees. As if this wasn’t enough, where the violating employer holds a contractor’s license, the law also mandates that the CSLB receive notification of the violation and initiate action against the licensee-violator.

Proper employee classification is a nuanced exercise that requires consideration of multiple factors, including but not limited to (i) the extent to which the employer controls the details of the work performed, (ii) the type of work performed, (iii) where the work is performed and (iv) the parties’ intent. This fact, as well as the severity of the penalties set forth in SB 459 and the uncertainty of the new law’s practical application, creates a minefield of liability that employers must delicately traverse.

With the passage of SB 459, it is crucial that employers reevaluate their current employee classifications and immediately address any issues of misclassifications (or potential misclassifications).

Sweeney, Mason, Wilson & Bosomworth assists employers in performing employee classification audits in order to provide employers with the best possible protection from liability under laws such as SB 459. For a more specific analysis or additional information contact Roger Mason or Scott Mangum.


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