The California legislature passed two new laws employers should not ignore.  SB 459, now awaiting Governor Brown’s signature to go into law, imposes additional penalties against employers who are found to have willfully misclassified independent contractors.  Willful misclassification is defined as “avoiding employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor.”  This definition offers little guidance for employers analyzing whether to treat an individual as an employee or independent contractor.  Under this law, the punishment for getting it wrong would include:

  • penalties of  $5,000 – 15,000 for the first misclassification (penalties of  $10,000 – $25,000 for repeat violators);
  • mandatory posting of a notice that the employer has violated the law on an Internet website and/or in view of the public including an invitation for other potentially misclassified persons to contact the Labor and Workforce Development Agency for an entire year; and
  • additional fines and penalties.

An employer’s third-party advisors such as financial, accounting or human resources professionals will be jointly and severally liable with employers for fines and penalties; lawyers providing legal advice to employers are exempted from this provision.

Also on Governor Brown’s desk is AB 469, the “Wage Theft Prevention Act.”  This law mandates that employers provide written notice to each employee of his/her wage rate, payday and the name and address of the employer.  In addition to this basic information, employers must also provide written notice of any change in the rate of pay for an employee within 7 days unless the change is reflected in the employee’s wage statement.  While many employers already use offer letters to confirm wage rates, they should revisit the offer letters to confirm that they meet these new requirements such as including the payday which until this law would only have been required to be posted for employee reference.

Finally, under AB 469, employers who fail to pay employees properly by misclassifying them or failing to pay overtime, will now be subject to penalties for up to three years instead of one.  The law also increases the penalties for an employer’s failure to pay judgments obtained by employees who filed and were awarded unpaid wages and/or penalties.  Employees who are forced to pursue collection of unpaid judgments from their employers would be entitled to attorneys’ fees and costs as well.

California is not the only entity seeking to enforce its labor laws against employers who are perceived to cut corners and violate workers’ rights.  On September 19, 2011, the U.S. Department of Labor announced that Secretary of Labor Hilda Solis and the Internal Revenue Service signed a memorandum of understanding to further solidify the agencies’ commitment to pursue and punish employers who misclassify workers.  The DOL also announced that it’s Wage and Hour Division has agreed to coordinate with leaders from Connecticut, Maryland, Massachusetts, Minnesota, Missouri, Utah and Washington.  The Division also expects Hawaii, Illinois, Montana, and New York attorney general to be on board soon as well.