Although the Trump administration rescinded its guidance on worker misclassification earlier this year and appears to have otherwise taken a “softer approach” to misclassification enforcement, California employers should remain diligent in properly classifying their workers and should not allow lax federal enforcement to lead to similarly lax corporate policies. California employers remain subject to strict laws governing worker misclassification. California law presumes that all workers who render services for another are non-exempt employees unless employers prove that they are independent contractors or exempt employees. Cal. Lab. Code § 3357. Employers who willfully misclassify their workers can be subject to steep penalties.
Steep Penalties Await Employers Who Misclassify Employees
For instance, if the Labor and Workforce Development Agency or a court finds that an employer has willfully misclassified an individual as an independent contractor, the California Labor Code provides that the employer shall be subject to a civil penalty between $5,000 and $15,000 for each violation.
Penalties Can Add Up when there is a Pattern of Misclassification
If a tribunal finds that the employer has engaged, or is engaging, in a pattern or practice of violations, the employer shall be subject to a civil penalty of between $10,000 and $25,000 for each violation (in addition to other penalties or fines permitted by law). Obviously, these penalties can add up quickly for employers with large workforces. Yet, an employer’s potential liability does not end there.
Employers Can Also Face Penalties for Failing to Provide their Workforce with Important Information
In addition to statutory civil penalties for willful misclassification, employers may also be liable for further civil penalties for failing to provide:
- The California minimum wage
- Meal and rest periods
- Itemized wage statements and accurate payroll records
- Reimbursement of business related expenses
- Paid sick leave
- Reporting time pay
- Payroll taxes
- Unemployment insurance
- Disability insurance
- Workers’ compensation insurance
Employers Should Prepare to Pay for Legal Fees in Addition to Penalties if Sued by Workers
Notably, workers can file suit to recover these penalties under California’s Private Attorneys General Act (PAGA), and an aggrieved employee who prevails in such an action would also be entitled to reasonable attorney’s fees and costs, as well as a 25% share of the civil penalties recovered. This is quite an incentive for a disgruntled workforce, as well as the plaintiffs’ bar.
If you have any questions regarding the classification of your workforce, do not hesitate to contact any member of our Labor & Employment Practice Group.