from Ted Schwartz, Safety Manager, WWW.HRIDEAS.COM
As of January 1, 2012, a new law will be on the books which will significantly affect employers from mis-classifying employees and independent contractors. As you read on, you will find the construction employers are being specifically targeted under this law.
What Does This Law Do? The Highlights
The new law:
- Potentially discourages the engagement of independent contractor/sole proprietorships by penalizing employers who commit a "pattern and practice" of "willfully misclassifying" such service providers up to $25,000 per violation.
- Provides for joint and several liability for consultants (excluding practicing lawyers) who advise employers on such independent contractor engagements.
- Makes it unlawful to charge "misclassified" independent contractors any fee or take deductions from the compensation paid such contractors.
- Provides that the penalties are in addition to existing penalties, interest and taxes that may be imposed at the state level for misclassifying contractors.
- Appears to concentrate enforcement with the Labor Commissioner, but also provides for private action, potentially including Private Attorney General Act (PAGA) lawsuits.
- Does nothing to clarify who is an independent contractor versus an employee, although it defines "willfully misclassifies."
- Effectively requires a one-year public prominent posting (on a website or at a worksite) of notice that the entity was found to have willfully misclassified an independent contractor.
Basically, under this newly enacted statute any entity that "willfully mis-classifies" an individual as an "independent contractor," when that individual is determined to have actually been an "employee," faces new stiff civil penalties and other repercussions. T
New Penalties for Misclassification
Under this new statute, the California Labor and Workforce Development Agency can fine an entity that "willfully misclassifies" an "employee" not less than $5,000 and up to $15,000 per violation. Further, if that entity is found to have engaged in a "pattern or practice" of misclassification, then those fines are ratcheted up to a minimum of $10,000 per violation, with a cap of $25,000 per violation.
"Willful misclassification" means avoiding employee status for an individual "by voluntarily and knowingly misclassifying that individual as an independent contractor." As with penalties for willfully failing to pay employees their final pay, employers will argue that a good faith dispute over the individual's classification should defeat the necessary "willful" conduct.1 However, until the courts interpret the statute, what standard is applied and what constitutes "voluntarily and knowingly misclassifying" an individual will remain open for debate.
While seemingly delegating express authority to the Labor Commissioner, the new law also potentially identifies as "enforcers" all the agencies, departments, commissions, boards and divisions of the California Labor and Workforce Development Agency (LWDA). The LWDA is a "super agency," encompassing not only the Labor Commissioner (under the Department of Industrial Relations), but also the Workers' Compensation Board, the Employment Development Department (EDD), and the California Unemployment Insurance Appeals Board (the Board to which appeals are made from EDD assessments).
The Labor Commissioner and the other agencies within the LWDA can enforce the penalties administratively or through a civil suit.
Law Specifically Targets the Construction Industry
Presumably because the legislature believes that the construction industry is mis-classifying a significant number of independent contractors, the law also specifies that any final determination of mis-classification by a state-licensed contractor will be sent to the Contractors' State License Board, which "shall" initiate disciplinary action against a licensee within 30 days. The legislation does not specify the nature of that disciplinary action.
Contact HR Ideas, Inc. should you have any questions or need any assistance in complying with the new law. Ted Schwartz, Safety Manager, can be reached at WWW.HRIDEAS.COM, Bishop Ranch 2, 2680 Bishop Avenue, Suite 126, San Ramon, CA 94583. Main: 925.556.4404. Fax to email: 925.359.1470
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