Summary: Last week, the California Legislature passed SB 459, known as the “Worker Misclassification” bill. This bill prohibits the willful misclassification of individuals as independent contractors and imposes penalties of between $5,000 and $25,000 per violation. In addition to these monetary penalties, violators are branded with a “scarlet letter” requiring them to prominently display a notice of the violation on their website, which must remain posted for one year.
Additional Details: What is a “willful” violation? The term “willful” is typically interpreted to require an intentional act or omission, and is defined in the bill as “avoiding employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor”. Additionally, the bill provides penalties for employers who make deductions from compensation to misclassified independent contractors that would not be allowed if the individual was an employee (for example, charging for materials, space rental, repairs, etc.).
The Legislature was likely motivated in part by the desire to recapture some of what is estimated to be billions of dollars in lost revenue from the misclassification of employees as independent contractors. Opponents of the bill (the California Chamber of Commerce and other employer-based organizations) call it a “job-killer” and argue that it creates an additional hazard for employers in attempting to navigate the murky waters of classification.
With this new bill, expected to be signed by the Governor in the next 30 days, the potential cost of misclassifying employees as independent contractors ratchets up another few notches — starting at $5,000 to $15,000 per violation and increasing to $10,000 to $25,000 per violation where the employer is found to have engaged in a “pattern or practice of violations”. Therefore, it is more important than ever to for employers to have a classification process in place that they can rely on to establish that they did not “willfully” violate the law.
Advice to employers: This new bill provides yet another indication of both the federal and state government’s intention to look to independent contractor misclassification as a source of revenue. Employers can provide an additional layer of protection from this liability by outsourcing the classification function to a reputable and knowledgeable third party, taking it out of the hands of hiring managers or others who may lack this specialized training and may be viewed as acting in their employer’s economic interests (and not considering the situation through an objective set of eyes).
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WATCH OUT – California Targets Independent Contractor Misclassification with New PenaltiesSeptember 23rd, 2011Second Time AroundJune 28th, 2010Whenever I used to hear the words,second time around, that late 70’s/early80’s r&b song would always come to mind. Those days at the skate ranch will always be memorable. But enough about my r&b infused memories. The second time around that I’m currently referring to involves independent contractor legislation. In the last few months there has been legislation that has been reintroduced in both the house and senate that were initially introduced in Congress’s last session. HR 5107 and S. 3254 both of which share the same name, the Employee Misclassification Prevention Act , have made their way back onto the floor in hopes of gaining approval from the committees and being sent to the floor for a vote. These two pieces of legislation are not the only items receiving a second chance as the Taxpayer Responsibility, Accountability and Consistency Act of 2009 (S. 2882 & H.R. 3408) has also received a potential second opportunity. Why give these bills another shot when they had their chance in the last session? Simply put, worker misclassification is HOT. Everywhere you read, someone seems to be talking about it. In the last session of Congress(2007 -2008), most of these bills were introduced in the latter half of 2008 when the session was coming to a close and therefore the legislation could not gain any traction. Another thought could be that the pieces of legislation were not appropriately written therefore there was never going to be any takers. Whatever the real reason is, it’s hard to argue that worker misclassification was a minor blip on the radar back then and now it’s becoming a black hole. Will these new pieces of reincarnated legislation find their way on to the President’s desk? Well that’s tough to say. They could run into similar obstacles as their predaccessors. What I do know is that if these bills fail to advance again, we might as well nickname them phoenix. With the independent contractor landscape always changing, it’s hard to believe that they won’t rise again from the ashes. What Kind of Worker Misclassification Lawsuit Can Brown Settle for You?December 31st, 2009A few weeks ago a settlement of courier worker misclassifcation lawsuit came through the newswire so I readied my pen….er keyboard for what I thought was surely going to be another Fedex ripping. Let me start by saying that I’m not some Fedex hater. They’re just an easy misclassification target that provides good fodder for discussion. That being said, I was shocked to read that the courier in brown was the one opening up it’s pocketbook.
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