New Penalties for Misclassifying Employees

By: Laura C. Hess

SB 459, signed by Gov. Jerry Brown in October 2011, prohibits employers from willfully misclassifying an employee as an independent contractor. "Willful misclassification" means that the employer is trying to "avoid employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor." The new law also makes any non-lawyer who advises an employer to willfully misclassify employees jointly and severally liable along with the employer.

Penalties for violation include:

1. $5,000 to $15,000 civil penalty per violation.

2. $10,000 to $25,000 civil penalty for a "pattern and practice of violations."

3. The court or California Labor and Workforce Development Agency ("CLWD") can contact the California State Contractor's Licensing Board and require it to initiate action.

4. Required notice posting, visible to all employees and the public, stating that the employer has committed a serious violation of the law by willfully misclassifying employers and independent contractors; that it has changed its business practice to avoid further violation; that any worker believing he or she is misclassified may contact the CLWD; and that the notice is being posted pursuant to a state order. This notice must be signed by a company officer and must remain posted for one year.

Laura C. Hess is a Partner with Kring & Chung, LLP's Irvine, CA office. She can be contacted at (949) 261-7700 or lhess@kringandchung.com.