Gov. Brown Signs Bill Increasing Penalties for Improper Designation of California Workers as Independent Contractors

On October 9, 2011, Governor Jerry Brown signed SB 459 which adds section 226.8 to the Labor Code and provides courts, the Labor Commission and Workforce Development Agency (“state”) the authority to issue severe penalties to employers that engage in “willful misclassification” of an individual as an independent contractor. These penalties are in addition to those set forth in existing law.
An employer who is found to have willfully misclassified a worker “shall be subject to a civil penalty of not less than five thousand dollars ($5,000) and not more than fifteen thousand dollars ($15,000) for each violation, in addition to any other penalties or fines permitted by law.” And the fines range from of ten thousand dollars ($10,000) to twenty five thousand dollars ($25,000) for subsequent offenses or engaging in a pattern and practice of such misclassification.
While this provision applies to California employers, it contains severe consequences for licensed contractors. If the state or a court finds that a licensed contractor has violated this section, the state or court shall send a certified copy of the order to the Contractors’ State License Board which shall initiate a professional licensing disciplinary action against the licensee within in 30 days.
In addition, the state or a court may order an employer who violates this section to:

    • Post on the employer’s website (or public place) for one year that the state has found that:
      • The employer “has committed a serious violation of the law by engaging in the willful misclassification of employees.”
      • The employer has changed its business practices in order to avoid committing further violations of this section.
      • Any employee who believes that he or she is being misclassified as an independent contractor may contact the Labor and Workforce Development Agency.

It is now more important than ever to consult with legal counsel when an employer uses independent contractors to perform work.