The State of California Signed an MOU with the Federal Department of Labor Together They Will Locate and Punish Those Who Misclassify Independent Contractors
In my November 4, 2011 post, I discussed a new California law (Labor Code § 226.8) that imposes serious monetary fines and other sanctions against those who willfully misclassify workers as “independent contractors” rather than “employees.” Those who violate the law can find themselves paying up to $15,000 per violation and up to $25,000 if there is a pattern and practice of misclassification. Also, if the violator is a licensed business, it runs the risk of having its license revoked. Finally, the law provides for publication of a notice to employees and the general public for a period of one year, stating that the violator committed a serious violation of the law.
California’s Secretary of Labor and Labor Commissioner have made it clear that California is serious about enforcing this new law and the state has teamed up with the Feds to help it do so. On February 9, 2012, the Deputy Administrator from the federal Department of Labor (DOL), Nancy J. Leppink, and California’s Labor Commissioner, Julie Su, held a press teleconference announcing that the DOL and California have signed a Memorandum of Understanding (MOU) that provides for the DOL and California to share information and resources as they embark on intensified enforcement efforts against those who misclassify workers as independent contractors. According to the DOL and the State, the purpose of increasing enforcement is to protect the rights of employees and level the playing field for responsible employers by reducing the practice conducted by some businesses of misclassifying employees. This federal/state partnership is the twelfth of its kind for the DOL.
Leppink stated at the press conference that "this memorandum of understanding helps us send a message: We are standing together with the State of California to end the practice of misclassifying employees. …This is an important step toward making sure that the American dream is still available for workers and responsible employers alike."
Su said "California is proud to enter into this partnership with the U.S. Department of Labor to work together to attack the problems of the underground economy, … Gov. Brown just signed an important law that went into effect on Jan. 1, increasing penalties for willful misclassification. With the Labor Department, we are poised to use all the tools in our arsenal to lift the floor for hardworking employers and employees throughout the state." The current term of the MOU is through December 21, 2014.
California businesses must be aware that any business model that attempt to change, obscure or eliminate the employment relationship are illegal if they are used to evade compliance with the law. The misclassification of employees as something else, such as independent contractors, presents a serious problem because these workers often are denied access to certain benefits and protections like family and medical leave, overtime compensation, minimum wage, and unemployment insurance benefits, to which they are entitled. Misclassification can create economic pressure for law-abiding business owners, who often struggle to compete with those who are skirting the law. Finally, and most important to both the federal and state government, employee misclassification generates substantial losses in federal and state tax revenues, unemployment insurance contributions, and workers’ compensation funds.
For questions regarding this new MOU or any of the federal or state laws related to the misclassification of independent contractors, or for legal assistance in evaluating your current classifications, feel free to contact Lizbeth West or one of the other employment lawyers in the Employment Group at Weintraub Genshlea Chediak Tobin & Tobin – the employment lawyers who support employers.