Labor & Employment

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New Penalties For Misclassifying Employees As Independent Contractors

Let's Be Careful Out There …

October 14, 2011

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New provisions in the Labor Code, recently signed into law by Governor Brown, create an additional set of penalties (as if there weren't enough already)  when employers wrongfully and willfully classify all or part of their workforce as independent contractors when they should have been paid as employees. 

Long a difficult issue for employers to assess, this new law increases the stakes. Violators face potential penalties of between $5,000 and $15,000 for "each violation," a phrase whose definition already has been the source of much argument in the world of class action litigation.  Those penalties grow to between $10,000 and $25,000 if an agency or court finds evidence of a pattern and practice. 

Putting aside the already difficult – and arguably subjective – task of analyzing the factors that make up the independent contractor test, the words of the statute itself will create another layer of uncertainty.  Although "willful" is defined in the statute as "voluntarily and knowingly,"  none of those words has been easily defined in other class action areas.  

An additional section, sometimes referred to as the "Scarlett Letter" provision, requires a violator to post a prominent notice  on its Internet Web site stating that a court or the Labor and Workforce Development Agency has found that it committed a serious violation of the law and that it has since changed its business practices. 

How this new language will be interpreted and the penalty provision utilized remains to be seen but, at the least, misclassification class actions promise to take on a new prominence now that there's an additional bounty.

For more information, please contact:

Jahmal Davis

415-995-5815 Direct Phone
415-995-3489 Fax

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