California Governor Jerry Brown has signed into law Senate Bill 459, a law that enacts stiff penalties on employers who willfully misclassify individuals as independent contractors. This law, which will take effect January 1, 2012, adds two new sections, Sections 226.8 and 2753, to the California Labor Code. Section 226.8 provides that it is unlawful for any person or employer to willfully misclassify workers as independent contractors and creates civil penalties of between $5,000 and $25,000 for each violation, in addition to any other penalty permitted by law. This Section also prohibits employers from charging fees or making deductions from the compensation paid to the misclassified workers, mandates that any licensed contractor who violates this section be reported to the Contractors' State License Board, which must then initiate disciplinary action, and requires a violator to post a notice on its website stating that it has committed a serious violation of the law. Section 2753 adds a provision stating that certain individuals who advise an employer to misclassify will be held jointly and severally liable with the employer if the worker is found not to be an independent contractor. The potential civil penalties arising from this new law are astronomical, and the law, in conjunction with recent efforts by the Department of Labor and the IRS to stop misclassification of workers, serves as another urgent reminder to businesses of the importance of properly classifying their employees and independent contractors.
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