There has been a lot of controversy during these past few years over misclassification of employees as independent contractors and California has been the focal point for enforcement. The state agencies have intensified their audit efforts trying to reclassify independent contractors as employees to try and recuperate the funds that would have been made to the state for unemployment insurance and other taxes and penalties. Recently, Senate Bill 459 was passed by the Governor that expanded the adverse consequences for misclassifying an independent contractor who should be an employee. This law makes it unlawful for any “person” to knowingly misclassify an individual as an independent contractor. This raises the presence of individual liability, also corporate liability of the true employer, for misclassification under the new law.

The new bill also imposes new penalties that range from $5,000 to $15,00 for each violation, which could be fatal for a business. There are also enhanced penalties for a person or business if caught engaged in a pattern or practice violations that can range from $10,000 to $25,000. The law also states that anyone found in violation is required to post on the employer’s website or in the workplace that gives notice to employees and the public that the person or business has engaged in willful misclassification of employees. This is also meant to advise any workers who believe that he or she has been misclassified to contact the Labor Workforce Development Agency.

A willful misclassification under law is defined as avoiding employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor. This very broad language used that leave room debate in a legal battle where there is already litigation over the standards relevant to these workers.

California is a difficult and expensive state for an employer, especially in the area of compliance with wage and hour laws. This bill increases the potential exposure in terms of liable parties and the devastating costs of misclassification. Any business or individual doing business that hasn’t recently audited and analyzed its classification of workers as independent contractors should start right away and shouldn’t wait to do so.