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Employee or Independent Contractor? Enhanced Penalties in Recent California Legislation Counsel Review of Non-Employee Classification Practices

By: Camille Olson, David Kadue, Tim Haley, Fred Sanderson and Ferry Lopez

On October 9, 2011, Governor Jerry Brown signed California Senate Bill 459 ("SB 459"), which adds sections 226.8 and 2753 to the California Labor Code. SB 459, effective January 1, 2012, imposes steep penalties on employers who willfully misclassify employees. This legislation is but one example of a growing effort at both the federal and state level to identify, reclassify, and prevent misclassification of employees as independent contractors, deterring companies from doing so with significant penalties.

Key Provisions of SB 459

SB 459 makes it unlawful:

• to willfully misclassify an individual as an independent contractor; or
• to charge a willfully misclassified contractor a fee or make any deductions from compensation for any purpose including for goods, materials, space rental, services, government licenses, repairs, equipment maintenance or fines.

In addition, SB 459:

• imposes a civil penalty of between $5,000 and $15,000 for each violation;
• increases the civil penalties to between $10,000 and $25,000 if the employer has engaged, or is engaging, in a pattern or practice of such violations;
• provides for the Contractor's State License Board to initiate disciplinary action against any licensed contractor that has been found to have violated the Act;
• requires that any person or employer who has been found to have violated the Act to post a website notice (or to display prominently if there is no website) that, the person or employer has been found to have violated the Act and that the employer or person has changed its practices to prevent further violations;
• provides that violations and disciplinary actions shall "remain in effect" against successors if it has one or more principals or officers and is engaged in the same or similar business; and
• provides for joint and several liability for any person, other than an attorney or an employee providing advice to his or her employer, who knowingly advises an employer to treat an individual as an independent contractor to avoid employee status for that individual if the individual is found not to be an independent contractor.

Enforcement

SB 459 authorizes the Labor and Workforce Development Agency ("LWDA") or a court to determine if an employer has violated the provisions of SB 459, and to assess civil penalties. SB 459 also provides that the Labor Commissioner may enforce the statute and assess penalties through Labor Code section 98 proceedings. Despite the Legislative Counsel's statement that SB 459 authorizes an individual to file a complaint to request the Labor Commissioner to assess penalties, the language of the statute does not expressly authorize an employee to bring such an action, either in court or before the Labor Commissioner.

Source: Reprinted with authors permission: By: Camille Olson, David Kadue, Tim Haley, Fred Sanderson and Ferry Lopez

Camille Olson and David Kadue are partners in the Seyfarth's Los Angeles - Century City office, Tim Haley is a partner in Seyfarth's Chicago office, Fred Sanderson is a partner and Ferry Lopez is an associate in the Sacramento office. If you would like further information, please contact your Seyfarth Shaw LLP attorney, Camille Olson at colson@seyfarth.com">colson@seyfarth.com, David Kadue at dkadue@seyfarth.com">dkadue@seyfarth.com, Tim Haley at thaley@seyfarth.com">thaley@seyfarth.com, Fred Sanderson at asanderson@seyfarth.com">asanderson@seyfarth.com or Ferry Lopez at flopez@seyfarth.com">flopez@seyfarth.com.