When a company misclassifies a worker as an independent contractor, the consequences are severe, including back taxes, wages and benefits, and civil and criminal penalties, and can come from all sides, including individual and class action lawsuits, state and federal agency audits and enforcement actions, and even criminal prosecution. But the California legislature has decided all these sanctions are not enough. On October 9, 2011, Governor Jerry Brown signed into law Senate Bill 459, which adds two new provisions to the California Labor Code and creates additional penalties for independent contractor misclassification.

What is SB 459?

The new law adds two new sections to the California Labor Code (sections 226.8 and 2753) and applies to all employers. It creates civil penalties of between $5,000 and $25,000 for willful misclassifications of workers as independent contractors. These penalties are in addition to all other penalties and fines permitted by law. A "willful misclassification" is defined as "avoiding employee status for an individual by voluntarily or knowingly misclassifying that individual as an independent contractor". The new law also prohibits charging fees to or making deductions from the compensation paid to the misclassified workers if the fee or deduction would have been prohibited if the worker was an employee.

In addition to steep civil penalties for each violation, the new law requires any person or employer who willfully misclassifies a worker as a contractor to prominently display a notice on its website that states (1) it has committed a serious violation of the law by engaging in the willful misclassification of employees; (2) it has changed its business practices to avoid further violations; (3) that any employee who believes he or she is being misclassified may contact the Labor Workforce Development Agency; and (4) that the notice is being posted pursuant to a state order. The notice must be posted for one year and be signed by an officer of the company.

The California Labor Commissioner is charged with enforcement of the law, though employees may presumably bring enforcement actions on behalf of themselves and others under the Private Attorneys General Act.

Click here for the full text of SB 459 and the new Labor Code sections.