BILL ANALYSIS �
SB 459
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Date of Hearing: August 17, 2011
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
SB 459 (Corbett) - As Amended: August 15, 2011
Policy Committee: Labor and
Employment Vote: 4-2
Judiciary 6-3
Urgency: No State Mandated Local Program:
No Reimbursable: No
SUMMARY
This bill makes the following changes related to the
classification of individuals as independent contractors (ICs):
1)States it is unlawful for any person or employer to (a)
willfully misclassify an individual as an IC, or (b) charge an
individual who has been misclassified as an IC a fee, or make
any compensation deductions, as specified.
2)Requires any person or employer found guilty of the above
violations, as determined by the Labor and Workforce
Development Agency (LWDA), to be assessed a civil penalty of
not less than $5,000 and not more than $15,000.
3)Requires any person or employer found guilty of a repeated
pattern or practices of the above violations, as determined by
LWDA, to be assessed a civil penalty of not less than $10,000
and not more than $25,000.
4)Requires the LWDA, if the agency or a court finds the person
or employer violated the above provisions, to order the person
or employer to display prominently on its website a notice
with specified provisions, including notification there was a
violation of the law by engaging in the willful
misclassification of employees and the employer has changed
its business practices to avoid further violations.
5)Requires a person or the employer to meet specified
requirements in preparing the above notice, including posting
requirements if there is not an Internet website, and post the
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notice for two years, as specified.
6)Requires any civil penalty or disciplinary actions taken
against a person or employer, as referenced above, to be in
effect against a successor corporation or business entity that
satisfies both of the following: (a) has one or more of the
same principals or officers as the person or employer subject
to the penalty or action, and (b) is engaged in the same or
equivalent trade or activity as the person or employer subject
to the penalty or action.
7)Requires a person who knowingly advises an employer to treat
an individual as an IC in order to avoid employee status to be
jointly responsible and severally liable with the employer, if
the individual is found not to be an IC. Further specifies
this provision does not apply to a person who provides advice
to his or her employer and an attorney authorized to practice
law, as specified.
FISCAL EFFECT
Minor, absorbable costs to EDD to implement this measure.
Employers who are found in violation of statute relating the
misclassification of employees will incur costs to meet the
notice requirements of this measure.
COMMENTS
1)Purpose . According to EDD, "The basic test for determining
whether a worker is an independent contractor or an employee
is whether the principal has the right to direct and control
the manner and means by which the work is performed. When the
principal has the 'right of control,' the worker will be an
employee even if the principal never actually exercises
control. If the principal does not have the right direction
and control, the worker will generally be an independent
contractor."
As part of President Obama's 2011 Budget, the United States
Department of Labor (USDL), states: "Individuals wrongly
classified as ICs are denied access to critical benefits and
protections to which they may be entitled as regular
employees. Worker misclassification also generates substantial
losses to the U.S. Treasury and the Social Security, Medicare
and Unemployment Insurance Trust Funds. To address this
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problem, the 2011 Budget includes a joint Labor-Treasury
initiative to strengthen and coordinate Federal and State
efforts to enforce statutory prohibitions, identify, and deter
misclassification of employees as independent contractors."
This bill imposes higher penalties on a person or employer who
willfully misclassifies employees as ICs, as specified.
2)Previous related legislation .
a) SB 622 (Padilla) contained similar provisions penalty
provisions related to the misclassification of employees as
ICs. Gov. Schwarzenegger vetoed this bill in October 2007
with the following message:
"Although this bill is intended to promote the worthy goal
of ensuring employees are not intentionally misclassified
as independent contractors, thus deterring employers from
conduct which may give them unfair economic advantages
against their competitors, this bill also creates new
mechanisms and incentives for litigation where sufficient
remedies already exist. In creating new and redundant
exposure to litigation and sanctions, this bill may cause
businesses to avoid use of the independent contractor model
even where it may be appropriately utilized. This will
ultimately contribute to a negative perception of
California as an inhospitable business climate."
b) SB 1583 (Corbett) contained similar provisions related
to a person knowingly advising an employer to treat an
individual as an IC. Gov. Schwarzenegger vetoed this bill
in September 2008 with the following message:
"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
increasing 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."
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Analysis Prepared by : Kimberly Rodriguez / APPR. / (916)
319-2081