California Gov. Jerry Brown earlier this month signed a law that prohibits companies from wilfully misclassifying individuals as independent contractors and penalizes companies that do so. The law, SB 459, defines “wilful misclassification” as “avoiding employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor.”
Companies found to have wilfully misclassified workers as ICs face fines of $5,000 to $25,000 per violation and will be required to post on their premises and/or website that they have been found to have wilfully misclassified workers. Further, licensed contractors found to have violated the law will be reported to Contractors’ State Licensing Board for discipline. The law, which goes into effect on Jan. 1, 2012, also prohibits companies from charging fees or taking deductions from misclassified workers, such as for space rental, licenses, equipment, good, materials, repairs or fines.
The law also targets any person who, for money or other valuable consideration, knowingly advises an employer to classify an individual as an independent contractor in order to avoid employee status. People who provide advice to their own employer or attorneys who provide legal advice in the course of practicing law are exempt.
California businesses that are most likely to be affected by this law are those that evaluate employment/contractor status for third parties, businesses in the construction industry, transportation and courier businesses, companies that lease or rent space/equipment to contractors performing services for the company, and any company heavily dependent on the services of unincorporated independent contractors.
All organizations that use the services of independent contractors, in California especially, should consider conducting regular audits of their independent contractors with the assistance of legal counsel.