Client Memo – New CA Worker Classification Law
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Earlier in October, California Governor Jerry Brown signed a new worker classification law imposing significant penalties on employers who misclassify employees.

Effective date – January 1, 2012

Key provisions –

  1. It is unlawful to voluntarily and knowingly misclassify an individual as an independent contractor.
  2. It is unlawful to charge the misclassified employee a fee or make any deductions from his/her compensation that would have otherwise violated the law had the employee not been misclassified. For example, an employer may not charge a misclassified employee for use of the employer’s supplies, tools, and equipment.
  3. It imposes a civil penalty of between $5,000 and $15,000 for each violation of misclassification. Note that the penalties will increase to between $10,000 and $25,000 per violation if the employer is found to have engaged in a pattern of such violations.
  4. In addition to penalties assessed, violators will be ordered to display a prominent notice of violation on their website for a period of one year to advise employees and the general public of such violations committed.
  5. It further provides for joint and several liabilities for any person, other than an attorney or an employee, who knowingly advises an employer to misclassify an employee.

Enforcement –

  1. The bill authorizes the Labor and Workforce Development Agency and the Labor Commissioner to issue a determination and assess permitted penalties against violating employers.
  2. The bill also authorizes individuals to file a complaint with the Labor Commissioner to request a determination on possible worker classification violations concerning the individual filing the complaint.

Recommendations –

  1. Obtain an understanding of the rules for worker classification.
  2. Review past decisions regarding independent contractor status.
  3. Develop a corporate policy on engagement and management of independent contractors.
  4. Establish and execute a written independent contractor agreement for each contractor.
  5. If independent contractor status is in question, obtain a written legal opinion from counsel.

If you have any questions regarding the new law or the recommendations discussed above, please do not hesitate to contact us.

Disclosures

Cerity Partners LLC (“Cerity Partners”) is an SEC-registered investment adviser with offices across the United States. Registration as an investment adviser does not imply any level of skill or training.

The information provided is not intended as personalized investment, tax, or legal advice. There is no guarantee that any opinions, projections, or views expressed will materialize. You should consult a qualified professional before making financial decisions.

Information is subject to change without notice and is believed to be reliable but is not guaranteed. For Cerity Partners’ registration status, please visit the Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov.

For additional details about our services, fees, or potential conflicts of interest, please request our disclosure statement, including Form CRS and ADV Part 2, using the contact information provided.

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