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New California Law Expands Misclassification Liability

A new law that went into effect in January could have serious consequences for anyone who advises an employer to treat an employee as a contractor, if in fact that classification is knowingly incorrect. The contractor misclassification law is under labor code 2763 and it allows the California Labor and Workforce Development Agency to assess monetary penalties against individuals or employers who violate the law.

The law states "that a person who, for money or other valuable consideration, knowingly advises an employer to treat an individual as an independent contractor to avoid employee status for the individual shall be jointly and severally liable with the employer if the individual is not found to be an independent contractor." It's likely that a person who receives money for advice about employee classification status could be a human resources consultant, an attorney or an insurance agent or broker of workers' comp or employment liability insurance, although it remains to be seen how California courts would interpret the definition of "person" under the law.

The new California law is much broader than most other states' laws, particularly because it imposes a heavy burden on anyone who offers incorrect advice or guidance to an employer. The fines associated with a false contractor misclassification may exceed thousands of dollars.

According to one attorney quoted in the Insurance Journal article, it's believed that this strict law "as far as we know, is the first time the labor code has imposed penalties on people other than employer." For questions about the implications of the new 2012 contractor misclassification law, speak to a knowledgeable California employment law attorney.

Source: Insurance Journal, "California Independent Contractor Law May Be Liability for Agents, Brokers," Don Jergler, 2/7/2012

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