Misclassification of Independent Contractors – Happy 2012!

Last Messenger Appreciation Day (October 9, 2011) California Governor Jerry Brown signed Senate Bill 459 (SB 459) that imposes strict penalties on employers who willfully misclassify workers as independent contractors as well as advisors (excluding lawyers) who knowingly counsel employers to engage in willful misclassification.

This new law came into effect on January 1, 2012. It adds Sections 226.8 and 2753 to the California Labor Code.

Section 226.8 prohibits the willful (“voluntarily and knowingly”) misclassification of a worker as an independent contractor. It also prohibits employers from charging misclassified individuals for items such as  materials, space rental, services, government licenses, repairs, equipment maintenance, or fines arising from the individual’s employment.

Penalties include fines of $5,000 to $10,000 for first the violation and up to $25,000 for repeat violations.

It also includes other penalties such as ordering an employer to post a notice on its website for a year, stating that the “employer has committed a serious violation of the law,” has changed its business practices to comply and   The notice must be posted for a year and must invite misclassified employees  to contact the California Labor and Workforce Development Agency.

 

Section 2753 states:

 (a) A person who, for money or other valuable 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.

However attorneys are exempted from this provision.

 

 

Text of section 226.8.

 (a) It is unlawful for any person or employer to engage in any of the following activities: (1) Willful misclassification of an individual as an independent contractor. (2) Charging an individual who has been willfully misclassified as an independent contractor a fee, or making any deductions from compensation, for any purpose, including for goods, materials, space rental, services, government licenses, repairs, equipment maintenance, or fines arising from the individual’s employment where any of the acts described in this paragraph would have violated the law if the individual had not been misclassified.

 (b) If the Labor and Workforce Development Agency or a court issues a determination that a person or employer has engaged in any of the enumerated violations of subdivision (a), the person or employer shall be subject to a civil penalty of not less than five thousand dollars ($5,000) and not more than fifteen thousand dollars ($15,000) for each violation, in addition to any other penalties or fines permitted by law.

 (c) If the Labor and Workforce Development Agency or a court issues a determination that a person or employer has engaged in any of the enumerated violations of subdivision (a) and the person or employer has engaged in or is engaging in a pattern or practice of these violations, the person or employer shall be subject to a civil penalty of not less than ten thousand dollars ($10,000) and not more than twenty-five thousand dollars ($25,000) for each violation, in addition to any other penalties or fines permitted by law.

 (d) (1) If the Labor and Workforce Development Agency or a court issues a determination that a person or employer that is a licensed contractor pursuant to the Contractors’ State License Law has violated subdivision (a), the agency, in addition to any other remedy that has been ordered, shall transmit a certified copy of the order to the Contractors’ State License Board. (2) The registrar of the Contractors’ State License Board shall initiate disciplinary action against a licensee within 30 days of receiving a certified copy of an agency or court order that resulted in disbarment pursuant to paragraph (1).

 (e) If the Labor and Workforce Development Agency or a court issues a determination that a person or employer has violated subdivision (a), the agency or court, in addition to any other remedy that has been ordered, shall order the person or employer to display prominently on its Internet Web site, in an area which is accessible to all employees and the general public, or, if the person or employer does not have an Internet Web site, to display prominently in an area that is accessible to all employees and the general public at each location where a violation of subdivision (a) occurred, a notice that sets forth all of the following: (1) That the Labor and Workforce Development Agency or a court, as

 applicable, has found that the person or employer has committed a serious violation of the law by engaging in the willful misclassification of employees. (2) That the person or employer has changed its business practices in order to avoid committing further violations of this section. (3) That any employee who believes that he or she is being misclassified as an independent contractor may contact the Labor and Workforce Development Agency. The notice shall include the mailing address, e-mail address, and telephone number of the agency. (4) That the notice is being posted pursuant to a state order.

 (f) In addition to including the information specified in subdivision (e), a person or employer also shall satisfy the following requirements in preparing the notice: (1) An officer shall sign the notice. (2) It shall post the notice for one year commencing with the date of the final decision and order.

 (g) (1) In accordance with the procedures specified in Sections 98 to 98.2, inclusive, the Labor Commissioner may issue a determination that a person or employer has violated subdivision (a). (2) If, upon inspection or investigation, the Labor Commissioner determines that a person or employer has violated subdivision (a), the Labor Commissioner may issue a citation to assess damages set forth in subdivisions (b) and (c) in addition to any other penalties or damages that are otherwise available at law. The procedures for issuing, contesting, and enforcing judgments shall be the same as those set forth in Section 1197.1. (3) The Labor Commissioner may enforce this section pursuant to Section 98 or in a civil suit.

 (h) Any administrative or civil penalty pursuant to subdivision (b) or (c) or disciplinary action pursuant to subdivision (d) or (e) shall remain in effect against any successor corporation, owner, or business entity that satisfies both of the following: (1) Has one or more of the same principals or officers as the person or employer subject to the penalty or action. (2) Is engaged in the same or a similar business as the person or employer subject to the penalty or action.

 (i) For purposes of this section, the following definitions apply: (1) “Determination” means an order, decision, award, or citation issued by an agency or a court of competent jurisdiction for which the time to appeal has expired and for which no appeal is pending. (2) “Labor and Workforce Development Agency” means the Labor and Workforce Development Agency or any of its departments, divisions, commissions, boards, or agencies. (3) “Officer” means the chief executive officer, president, any vice president in charge of a principal business unit, division, or function, or any other officer of the corporation who performs a policymaking function. If the employer is a partnership, “officer” means a partner. If the employer is a sole proprietor, “officer” means the owner. (4) “Willful misclassification” means avoiding employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor.

 (j) Nothing in this section is intended to limit any rights or remedies otherwise available at law.

 

 

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One thought on “Misclassification of Independent Contractors – Happy 2012!

  1. What if an “individual” registered them self as a business, then did billing as usual (old style or as daily flat rate, even bill crazy event rates, like at Christmas :higher rate).
    Then accessed federal and municipal deductions that way.? That works in Canada. If “oneself” is the business you can do pretty-much the hell you want. You can even go from messenger one day to construction labour next, caterer next … its very open, and you can write off all types of shit. If your steps at home are in disrepair, fix it: then you could write off that. If ya need gas for the BBQ, write that off too. Throw a party, write it off…just invite some work peeps. I used to write off everything.

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