Willful Misclassification of Independent Contractors

Author: Li-An C. Leonard

Effective January 1, 2012, California Labor Code section 226.8 prohibits any person or employer from engaging in the willful misclassification of individuals as independent contractors as opposed to employees. "Willful" is defined as voluntary and intentional.

Civil penalties of $5,000 to$15,000 per violation will be assessed by the Labor and Workforce Development Agency for any misclassification. If an employer is found to have engaged in a "pattern or practice" of violations, the penalties range from $10,000 to $25,000. These civil penalties are in addition to any fines or taxes which may be owed to the IRS and the EDD for such misclassifications. In addition, if the offending employer is a licensed contractor, the law also requires that the contractor be referred to the Contractors' State License Board for disciplinary proceedings.

An employer found in violation will also be required to prominently post notice of the violation on its website for one year. If the employer does not have a website, it must post the notice in an area available to employees and the general public. The notice must state (a) that the employer committed a serious violation of the law; (b) that the employer changed its business practices to comply with the law; (c) how any employee who believes he or she has been improperly classified as an independent contractor may make a complaint; and (d) that the notice has been posted pursuant to state order.

This statute also prohibits charging misclassified workers any fees or making deductions from their compensation (i.e., for goods, materials, space rentals, services, licenses, repairs, maintenance, and fines) where those acts would have violated the law if the individual had been properly characterized as employees.

How the New Law May Affect You

  • Under this new law, any person who knowingly advises an employer to misclassify an individual as an independent contractor to avoid employee status for that individual will be jointly and severally liable with the employer.
  • Personnel responsible for classifying individuals as employees or independent contractors should be informed that they may be personally liable for any willful misclassification. If you use the services of independent contractors, you should carefully review their classifications to determine whether they qualify as independent contractors. Different administrative agencies apply different tests when determining whether an individual qualifies as an independent contractor.

Information on state agency requirements may be found on the EDD's website while information on federal requirements may be found on the IRS website. Of course, if you need assistance, our employment attorneys are available to help in reviewing your classifications.

 

 

California Employment Law Update is a publication of Duckor Spradling Metzger & Wynne's Employment Law Group.
The information contained in this publication is not intended to be and should not be construed as legal advice or opinions. Such advice and opinions are provided by the firm only upon engagement with respect to specific factual situations.
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