BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 459|
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UNFINISHED BUSINESS
Bill No: SB 459
Author: Corbett (D)
Amended: 9/2/11
Vote: 21
SENATE LABOR & INDUST. RELATIONS 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
SENATE FLOOR : 24-12, 6/2/11
AYES: Alquist, Calderon, Corbett, De León, DeSaulnier,
Evans, Hancock, Hernandez, Kehoe, Leno, Lieu, Liu,
Lowenthal, Negrete McLeod, Padilla, Pavley, Price, Rubio,
Simitian, Steinberg, Vargas, Wolk, Wright, Yee
NOES: Anderson, Berryhill, Cannella, Dutton, Emmerson,
Fuller, Gaines, Harman, La Malfa, Strickland, Walters,
Wyland
NO VOTE RECORDED: Blakeslee, Correa, Huff, Runner
ASSEMBLY FLOOR : 51-26, 9/7/11 - See last page for vote
SUBJECT : Employment: independent contractors
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SOURCE : California Labor Federation
California Teamsters Public Affairs Council
Communication Workers of America, District 9
DIGEST : This bill (1) prohibits willful
misclassification, as defined, of individuals as
independent contractors, (2) prohibits charging individuals
who have been mischaracterized as independent contractors a
fee or making deductions from compensation, as specified,
where those acts would have violated the law if the
individuals had not been mischaracterized, (3) authorizes
the Labor and Workforce Development Agency (Agency) to
assess specified civil damages against, and requires the
Agency to take other specified disciplinary actions
against, persons or employers violating these prohibitions,
(4) requires the Agency to notify the Contractors' State
License Board (CSLC) of a violator that is a licensed
contractor, and requires the CSLC to initiate an action
against the licensee, (5) authorizes an individual to file
a complaint, as specified, to request the Labor
Commissioner to issue a determination that a person or
employer has violated these prohibitions with regard to the
individual filing the complaint, (6) authorizes the Labor
Commissioner to assess civil and liquidated damages against
a person or employer based on a determination that the
person or employer has
violated these prohibitions, (7) provides that a person
who, for money or other valuable consideration, knowingly
advises an employer to treat an individual as an
independent contractor to avoid employee status for the
individual shall be jointly and severally liable with the
employer if the individual is not found to be an
independent contractor, and (8) exempts from the provisions
regarding joint and several liability a person who provides
advice to his/her employer or an attorney who provides
legal advice in the course of practicing law.
Assembly Amendments (1) add additional responsibility to
the Agency, (2) authorize an individual to file a complaint
as specified, with the Labor Commissioner in order to issue
a determine that a person or employee has violated has the
prohibitions with regard to the individual filing the
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complaint, (3) authorize the Labor Commissioner to assess
civil and liquidated damages against a person or employer
based on a determination that the person or employer has
violated these prohibitions, (4) if the Agency finds a
person or employer is in violation as specified, it must be
posted on their Internet Web Site, if they do not have
Internet Web Site, it is displayed prominently in an area
that is accessible to all employees, (5) change the
definition of "willful misclassification", (6) delete the
requirements for employers to provide to independent
contractors a form developed by the Employment Development
Department (EDD), as specified, and, (7) delete the
requirements for employers to maintain at least two years
of records of all independent contractors retained by the
employer, as specified.
Senate Floor Amendments of 5/27/11 replace the reference to
the term "employee" with "individual" and to replace the
term "hired" with "retained."
ANALYSIS : This bill enacts a number of provisions of law
related to the classification (or misclassification) of
individuals as independent contractors. Specifically, this
bill:
1. Makes it unlawful for any person or employer to engage
in any of the following activities:
A. Willful misclassification of an individual as an
independent contractor. ("Willful misclassification"
is defined as avoiding employee status for an
individual by voluntarily and knowingly
misclassifying that individual as an independent
contractor); and,
B. Charging an individual who has been willfully
misclassified a fee, or making any deductions from
compensation for any purpose, where the employer
would have been in violation of the law if the
individual had not been misclassified.
2. Provides that any person found guilty of the above
violations shall be assessed a civil penalty of not less
than $5,000 and not more than $15,000 for each
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violation.
3. Provides that any person found guilty of a repeated
pattern or practice of these violations shall be
assessed a civil penalty of not less than $10,000 and
not more than $25,000 for each violation.
4. Authorizes the Labor Commissioner to issue a
determination that a person or employer has violated the
provisions related to willful misclassification.
5. Authorizes the Labor Commissioner to issue a citation to
assess specified damages in addition to any other
penalties or damages otherwise available at law.
6. Authorizes the Labor Commissioner to enforce these
provisions administratively or in a civil suit.
7. Provides that a person or employer that violates the
above provisions shall be required to post a notice on
its Web site (or at the worksite if no Web site exists)
that sets forth specified information for a one-year
period of time.
8. Provides that if a licensed contractor engages in the
violations specified above that resulted in debarment, a
certified copy shall be sent to the CSLC, which shall
initiate disciplinary action against the licensee within
30 days.
9. Provides that any penalty issued under this bill shall
be in effect against any successor that has one or more
of the same principals or officers and is engaged in the
same or similar line of business.
10.Provides that a person who knowingly advises an employer
to treat an individual as an independent contractor and
to avoid employee status for that individual shall be
jointly and severally liable if the individual is found
not to be an independent contractor. This provision
does not apply to: (A) a person who provides advice to
his/her employer; or, (B) a licensed attorney who
provides legal advice in the course of the practice of
law.
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11.Makes other related and conforming changes.
Comments
This bill is the latest attempt in an ongoing effort to
develop legislation to combat the misclassification of
employees as independent contractors. Legislation in
recent years has addressed most of the individual
components contained in this bill. However, this bill
takes a more comprehensive approach and attempts to address
each of these elements in one measure. The sponsors of
this bill argue that when a worker is misclassified, he/she
loses more than just minimum wage and overtime protections.
He/she has no workers' compensation coverage if injured on
the job, no right to family leave when a loved one is ill,
and no unemployment insurance if he or she loses his/her
job. If he/she does not like the working conditions and
tries to join with others to ask for more pay or a safer
workplace, he/she has no legal right to organize or join a
union and no protection against employer retaliation. They
contend that the use and abuse of independent contractors
poses a serious threat to workers' rights and undermines
working conditions for all workers. It creates an unfair
playing field for all the responsible employers who
continue to honor their lawful obligations to their
employees.
The sponsors argue that the only way to effectively stop
misclassification is to create real economic disincentives.
This bill will help enforcement efforts and act as a
deterrent and, in doing so; it will level the playing field
for responsible businesses and protect vulnerable workers.
A coalition of employer groups opposes this bill, arguing
that determining the status of a person as an independent
contractor versus an employee is daunting for many
businesses because the process is so ambiguous and complex
and provides no certainty for decision-making. Instead of
imposing new requirements and liabilities regarding
independent contractors, the process should look to ways in
which to improve the ability of business to make accurate
and sound business decisions regarding the classifications
of their employees.
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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 increasingÝly] 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
SB 1490.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Assembly Appropriations Committee, this
bill will result in minor and absorbable costs to the EDD
to implement this bill.
SUPPORT : (Verified 9/7/11)
California Labor Federation (co-source)
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California Teamsters Public Affairs Council (co-source)
Communication Workers of America, District 9 (co-source)
All Counties Courier
American Federation of State, County and Municipal
Employees, AFL-CIO
California Chapters of the national Electrical Contractors
Association
California Conference Board of Amalgamated Transit Union
California Conference of Machinists
California Employment Lawyers Association
California Landscape and Irrigation Council
California Legislative Conference of the Plumbing, Heating
and Piping Industry
California Nurses Association
Chris Cooper Company
Consumer Attorneys of California
Engineers and Scientists of California
Greater California Livery Association
International Longshore and Warehouse Union
Professional and Technical Engineers, Local 21
Service Employees International Union, United Service
Workers
Small Business California
Southwest Regional Council of Carpenters
Speedway Delivery and Messenger Service
State Building and Construction Trades Council of
California
UltraEx, Inc.
UNITE HERE!
United Food and Commercial Workers Union, Western States
Council
OPPOSITION : (Verified 9/7/11)
Associated General Contractors
California Chamber of Commerce
California Farm Bureau Federation
California Grocers Association
California Newspaper Publishers Association
California Retailers Association
CalSmalBiz
Western electrical Contractors Association
Western Growers Association
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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
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 : Opponents argue that there is
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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
"Ýt]his lack of consistency creates a potentially
impossible standard of compliance for employers."
ASSEMBLY FLOOR : 51-26, 9/7/11
AYES: Alejo, Allen, Ammiano, Atkins, Beall, Block,
Blumenfield, Bonilla, Bradford, Brownley, Buchanan,
Butler, Charles Calderon, Campos, Cedillo, Chesbro,
Davis, Dickinson, Eng, Feuer, Fong, Fuentes, Furutani,
Galgiani, Gatto, Gordon, Hall, Hayashi, Roger Hernández,
Hill, Huber, Hueso, Huffman, Lara, Bonnie Lowenthal, Ma,
Mendoza, Mitchell, Monning, Pan, Perea, V. Manuel Pérez,
Portantino, Skinner, Solorio, Swanson, Torres,
Wieckowski, Williams, Yamada, John A. Pérez
NOES: Achadjian, Bill Berryhill, Conway, Cook, Donnelly,
Fletcher, Beth Gaines, Garrick, Grove, Hagman, Halderman,
Harkey, Jeffries, Jones, Knight, Logue, Mansoor, Miller,
Morrell, Nestande, Norby, Olsen, Silva, Smyth, Valadao,
Wagner
NO VOTE RECORDED: Carter, Gorell, Nielsen
PQ:kc 9/8/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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