BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 459|
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THIRD READING
Bill No: SB 459
Author: Corbett (D)
Amended: 3/23/11
Vote: 21
SENATE LABOR & INDUSTRIAL REL. COMMITTEE : 5-2, 4/13/11
AYES: Lieu, DeSaulnier, Leno, Padilla, Yee
NOES: Wyland, Runner
SENATE JUDICIARY COMMITTEE : 3-1, 4/26/11
AYES: Evans, Corbett, Leno
NOES: Harman
NO VOTE RECORDED: Blakeslee
SENATE APPROPRIATIONS COMMITTEE : 6-3, 5/26/11
AYES: Kehoe, Alquist, Lieu, Pavley, Price, Steinberg
NOES: Walters, Emmerson, Runner
SUBJECT : Employment: independent contractors
SOURCE : California Labor Federation
California Teamsters Public Affairs Council
Communication Workers of America, District 9
DIGEST : This bill (1) prohibits any person or employer
from engaging in willful misclassification of an employee
as an independent contractor and would provide for civil
penalties; (2) requires employers to provide to independent
contractors a form developed by the Employment Development
Department, as specified; (3) requires employers to
CONTINUED
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maintain for at least two years the records of all
independent contractors hired by the employer, as
specified; (4) provides that a person who knowingly advises
another person for money or other valuable consideration to
treat a worker as an independent contractor to avoid
employee status for the worker shall be jointly and
severally liable with the employer if the worker is not
found to be an independent contractor; exempt from this
provision are a person who provides advice to his/her
employer and attorneys authorized to practice law in
California or another United States jurisdiction who
provides legal advice in the course of the practice of law;
and (5) makes other changes relating to liability, records
inspection and access.
ANALYSIS :
Existing law:
1. Provides comprehensive requirements, rights, and
remedies relating to the employer-employee relationship,
including, but not limited to, wages and other
compensation, working hours, workers' compensation,
labor code violation actions, employment contracts, and
working conditions standards.
2. Defines a contract of employment as a contract by which
one, the employer, engages another, the employee, to do
something for the benefit of the employer or a third
person.
3. Provides a rebuttable presumption affecting the burden
of proof that a worker performing services for which a
license is required, as specified, or who is performing
such services for a person who is required to obtain
such a license is an employee rather than an independent
contractor. Proof of independent contractor status
includes satisfactory proof of the following factors:
A. The individual has the right to control and
discretion as to the manner of performance of the
contract for services;
B. The individual is customarily engaged in an
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independently established business; and
C. The individual's independent contractor status is
bona fide and not a subterfuge to avoid employee
status. A bona fide independent contractor status is
further evidenced by the presence of cumulative
factors such as control over the time and place the
work is performed, supplying the tools or
instrumentalities used in the work other than tools
and instrumentalities normally and customarily
provided by employees, hiring employees, performing
work that is not ordinarily in the course of the
principal's work, performing work that requires a
particular skill, holding a license pursuant to the
Business and Professions Code, the intent by the
parties that the work relationship is of an
independent contractor status, or that the
relationship is not severable or terminable at will
by the principal but gives rise to an action for
breach of contract.
4. With respect to lawful obligations of the employer such
as worker's compensation coverage, defines "employee" to
mean every person in the service of an employer under
any appointment or contract of hire or apprenticeship,
express or implied, oral or written, whether lawfully or
unlawfully employed, as specified.
5. With respect to lawful obligations of the employer such
as worker's compensation coverage, defines "independent
contractor" to mean any person who renders service for a
specified recompense for a specified result, under the
control of his principal as to the result of his work
only and not as to the means by which such result is
accomplished.
6. Provides that any person who holds a valid state
contractor's license and who willingly and knowingly
enters into a contract with any person who does not meet
the burden of proof of independent contractor status, as
specified, shall be subject to a civil penalty of $200
per person so contracted with for each day of the
contract. The civil penalties provided for by this
section are in addition to any other penalty provided by
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law.
7. Provides that employers must provide reports, as
requested, to the commission, allow inspection of
employment records by the commission or Division of
Labor Standards Enforcement, and keep records of
employee information, as specified. Employers failing
to do so are subject to civil penalties of $500 and may
be found guilty of a misdemeanor.
This bill:
1. Prohibits any person or employer from engaging in
willful misclassification of an employee as an
independent contractor or charging an employee who has
been willfully misclassified as an independent
contractor a fee, or making any deductions from
compensation for any purpose where the employer would
have been in violation of the law if the employee had
not been misclassified.
2. Provides that, if the Labor and Workforce Development
Agency or a court finds that any person engaged in any
of the above unlawful activities, that person shall be
assessed civil penalties of not less than $5,000 and not
more than $15,000 for each violation, in addition to any
other penalties or fines permitted by law. The civil
penalties would increase when the person has engaged in
any of the above unlawful activities and there is
evidence that the person has engaged in a pattern or
practice of these activities. This bill defines
"willful" as voluntary and intentional.
3. Requires employers to provide to independent contractors
a form developed by the Employment Development
Department (EDD), as specified.
4. Authorizes EDD to process a request for advice by an
individual as to whether that individual is an
independent contractor or employee.
5. Requires employers to maintain for at least two years
the records of all independent contractors hired by the
employer, as specified.
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6. Provides that a person who knowingly advises another
person for money or other valuable consideration to
treat a worker as an independent contractor to avoid
employee status for the worker shall be jointly and
severally liable with the employer if the worker is not
found to be an independent contractor. Under this bill,
a person who provides advice to his/her employer and
attorneys authorized to practice law in California or
another United States jurisdiction who provides legal
advice in the course of the practice of law would be
exempt from this provision.
Prior Legislation
SB 1583 (Corbett), Session of 2007-08, would have provided
employment consultant liability for advising unlawful
conduct through employee misclassification, was also vetoed
by Governor Schwarzenegger who argued that the liability
created under the bill would discourage consultants from
giving employment advice. Section 5 of this bill is
substantially similar to SB 1583.
In vetoing SB 1583, Governor Schwarzenegger stated:
"Existing law governing the difference between an
employee and an independent contractor is confusing to
employers. As the Legislature has failed to address this
confusion, many employers turn to consultants for help in
determining how best to classify individuals for
employment purposes. The new liability imposed by this
bill will make consultants wary of providing services to
businesses, leaving these employers without any guidance
in an increasingİly] litigious environment. I encourage
the Legislature to focus on addressing the confusion
caused by current law, not punishing those trying to
create and grow jobs in California."
SB 1490 (Padilla), Session of 2007-08, would have required
the EDD to create a form, including factors used by EDD in
determining independent contractor status, to be
distributed by employers to workers. SB 1490 was held in
the Senate Committee on Appropriations. Sections 2 through
4 and 6 through 7 of this bill are substantially similar to
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SB 1490.
Comment
Need for the bill . According to the author's office, "?
the General Accounting Office, at least ten million workers
are classified as independent contractors nationally, an
increase of more than two million in just six years. The
total cost to California in lost tax revenue has been
estimated at $7 billion. When a worker is misclassified as
an independent contractor, he or she is not subject to
California minimum wage and overtime protection laws.
Additionally, the worker has no workers' compensation
coverage if injured on the job, no right to family leave,
no unemployment insurance, no legal right to organize or
join a union, and no protection against employer
retaliation. The misclassification of workers as
independent contractors creates an unfair playing field for
responsible employers who honor their lawful obligations to
their employees. The misclassification of workers results
in a loss of payroll tax revenue to the State and increased
reliance on the public safety net by workers who are denied
access to work-based protections."
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
SUPPORT : (Verified 5/26/11)
California Labor Federation (co-source)
California Teamsters Public Affairs Council (co-source)
Communication Workers of America, District 9 (co-source)
American Federation of State, County and Municipal
Employees, AFL-CIO
California Conference Board of the Amalgamated Transit
Union
California Conference of Machinists
California Employment Lawyers Association
California Nurses Association
Consumer Attorneys of California
Engineers and Scientists of California
Greater California Livery Association
International Longshore and Warehouse Union
Professional and Technical Engineers, Local 21
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State Building and Construction Trades Council of
California
United Food and Commercial Workers Union, Western States
Council
UNITE HERE!
OPPOSITION : (Verified 5/26/11)
California Chamber of Commerce
California Dump Truck Owners Association
California Farm Bureau Federation
California Grocers Association
California Manufacturers and Technology Association
California Newspaper Publishers Association
California Retailers Association
California Trucking Association
Messenger Courier Association of the Americas
Personal Insurance Federation of California
Western Electrical Contractors Association
Western Growers Association
ARGUMENTS IN SUPPORT : The California Labor Federation, a
sponsor of this bill, writes:
"The growth in contingent work has only exacerbated the
abuse of workers in California's underground economy.
The underground economy, in which employers use cash pay
to avoid paying taxes, following regulations, and
complying with labor law, has thrived due to decades of
inadequate enforcement. Since 1980, the state population
has grown 62 percent, while the number of wage and hour
inspectors rose just 7%. Budget cuts and furloughs have
made already feeble enforcement efforts even less
effective.
"Employers have also become more sophisticated at evading
justice. Those who abuse workers' rights have learned
how to use labor contractors and temporary agencies as
smokescreens to hide who is really in charge. But
perhaps the most effective way to get off the hook for
worker wage and hour violations is by misclassifying the
worker as an independent contractor."
The California Teamsters Public Affairs Council, a sponsor
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of this bill, writes:
"Misclassification of employees as independent
contractors for the purpose of avoiding workers'
compensation, unemployment insurance, employment tax and
general labor law requirements is rampant in every
employment sector in California. This trend is
incredibly harmful to workers and their families. . . ."
"It is not only employees who are hurt by this nefarious
behavior, but also good actor employers and the State of
California, both of which must foot the bill for the
wrongdoings of these scofflaw employers. It is estimated
that the California underground economy is between $60 to
$140 billion, which means billions of dollars of lost
taxes for the state, billions of dollars in lost wages
for workers and billions of dollars in additional
premiums for workers' compensation and payments for taxes
borne by those employers who do pay their fair share."
ARGUMENTS IN OPPOSITION : This bill is opposed by, among
others, the California Chamber of Commerce, the California
Farm Bureau Federation, the California Grocers Association,
the California Manufacturers and Technology Association,
the California Newspaper Publishers Association, the
California Retailers Association, the California Trucking
Association, the Messenger Courier Association of the
Americas, the Personal Insurance Federation of California,
the Western Electrical Contractors Association, and the
Western Growers Association. These opponents argue that
there is no uniform, definitive test issued by all state
agencies for employers to follow when determining
independent contractor status. These opponents argue that
EDD has a set of factors for employers to use, yet the
Department of Industrial Relations admits that different
tests are utilized by different state agencies when
determining independent contractor status. These opponents
argue that "İt]his lack of consistency creates a
potentially impossible standard of compliance for
employers."
However, another opponent of the bill, California Dump
Truck Owners Association (CDTOA), suggests that existing
law regarding employee misclassification is sufficient.
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CDTOA argues that "a statutory presumption exists that a
workers is an employee rather than an independent
contractor should an employment status dispute arise (Labor
Code İSections] 2750.5, 3357). Our State agencies already
vigorously enforce California's misclassification laws and
regulations. . . . Furthermore, the federal government and
our civil court system currently provide additional
protection against such misclassification improprieties."
Opponents also believe that this bill subjects employers to
litigation under the Private Attorney General Act (PAGA)
and add another layer of costs onto businesses. Notably,
this bill does not specifically list its provisions under
PAGA. Further, opponents argue that businesses will be
burdened by maintaining independent contractor records for
two years and face potential penalties for failing to do
so. The author argues that businesses are already required
to maintain employee records and presumably have a system
for doing so, so incorporating independent contractor
records into this system will not be a substantial burden.
PQ:kc 5/27/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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