California’s new labor law, that took effect in October, designed to punish employers for misclassifying workers has vague language that could impact insurance and brokers that deliberately advise clients on their employee classification ultimately for thousands of dollars per misclassification. As of January, the new legislation too effect adding monetary fines and expanded the state’s labor code. Under labor code 2763, the law authorizes the California Labor and Workforce Development Agency to determine civil penalties on, and take disciplinary actions against persons or employers violating the new prohibitions.

The bill says “that a person who, for money or other valuable consideration, knowingly advises an employer to treat an individual as an independent contractor to avoid employee status for the individual shall be jointly and severally liable with the employer if the individual is not found to be an independent contractor.” Based on how you interpret this, the “person” possibly can extend to anyone who is paid for their advice to employers on how to classify employees. The law does exclude those employees who offer this advice or attorneys who give this advice in the course of practicing law. Be careful when giving advice to employers you might be liable for classification of workers. It’s safest for insurance clients and others in the industry to adopt best practices when advising clients on issues such as workers compensation and employment practices liability insurance.

Watch Out For the Fines

The law makes an adviser jointly liable with the employer but can also be liable up to 100 percent. What this means is that the advisors and employers can be fined separately, which they are liable up to 100 percent of any fines imposed. Those advising employers need to be very careful of how you are advising them, this could cost you and arm and a leg just for your advice.

Civil penalties for employers range from $5,000 to $15,000 per misclassified employee and $10,000 to $25,000 per employee when “a pattern and practice” of misclassification is proven. The fine for this law is for those insurance agents or brokers who knowingly advise employers to misclassify employees so that employers avoid taxes and medical insurance. For those who are ignorant to the law they can plead no knowledge of this.

For insurance agents or brokers to be liable they have to give advice to those employers but insurance agents or brokers do not generally offer advice to employers about classification of employees. The bill also requires an employer to pay for the advice and usually you don’t pay an insurance agent or broker for advice such as that, they typically get paid for the sale of insurance and not providing advice on labor laws. As an insurance agent or broker be sure to follow best practices when they do give advice about filling out classification paperwork.