By: James Kachmar

On September 14, 2011, the California Legislature enrolled Senate Bill 459 and presented it to Governor Jerry Brown for signature. (As of the time of this post, the Governor has still not acted on SB 459.)

SB 459 was introduced by Senator Ellen Corbett to address the issue of misclassification of employees as independent contractors. Under California law, there is extensive statutory provisions that address the employee/employer relationship and provide numerous protections to employees in areas such as minimum wage, overtime and working conditions. SB 459 was introduced to prevent the misclassification of employees as independent contractors so that “true” employees could receive the protections of these statutes. SB 459 would subject employers to civil penalties of up to $25,000 per violation in the event that an employer willfully misclassifies an employee as an independent contractor. SB 459 also provides employees with a private cause of action if they suffer actual harm.

Supporters of SB 459 argue that it is necessary given the increase in the number of reported cases of misclassified employees to the California Employment Development Department. Supporters claim that employers misclassify employees in an effort to save on labor costs. Misclassification also costs the State and Federal Governments in lower revenue with regard to social security, unemployment and income taxes. 

Opponents of SB 459 argue that it is poorly drafted, unfairly includes retroactive provisions, and could subject employers to lengthy and costly lawsuits arising from alleged misclassifications.

It remains to be seen whether Governor Brown will sign SB 459 into law. A similar bill was presented to then Governor Arnold Schwarzenegger in 2007 but he vetoed the legislation.

If SB 459 becomes law, employers are encouraged to review their classification of employees/independent contractors to avoid costly lawsuits and potential civil penalties.