California Partners with Department of Labor to Combat Independent Contractor Misclassification

On February 9, 2012, the federal Department of Labor (“DOL”) and the California Secretary of Labor announced a collaborative relationship between the agencies to target independent contractor misclassification. The DOL and the California Secretary of Labor signed a memorandum of understanding that touts the agencies’ focused “efforts on protecting the rights of employees.”

As previously reported here, the misclassification of employees presents substantial consequences for employers and is a growing concern in light of the new law and ramped-up agency enforcement efforts. Misclassification of independent contractors may result in liability for failure to provide FMLA leave, liability for unpaid Unemployment Insurance contributions, and liability for failure to pay overtime and minimum wage pay, among other consequences. For example, in its press release, the DOL announced that in 2011, it collected more than $5 million in back wages for minimum wage and overtime violations under the Fair Labor Standards Act (“FLSA”) that resulted from employees being misclassified as independent contractors.

The agencies’ announcement comes at the heels of legislation recently promulgated that increases the penalties for independent contractor misclassification. As previously reported here, Governor Brown signed into law Senate Bill 459 last year which imposes significant penalties for willful misclassifications of independent contractors. Under the new law, penalties range from $5,000 to $25,000 for each violation, and increase to between $10,000 and $25,000 in cases where a pattern or practice of misclassification is found. In addition, employers who are found to have violated this new law may be ordered to post a notice (in the workplace or on its website) to employees and the public for up to one year informing them of the violation.

Employers should expect to see increased scrutiny of independent contractor agreements from government agencies, as California is just the latest state to partner up with the DOL. Colorado, Connecticut, Hawaii, Illinois, Maryland, Massachusetts, Minnesota, Missouri, Utah and Washington signed similar agreements with the DOL.

In light of these recent developments, employers should evaluate the use of independent contractors in an environment of heightened enforcement efforts by the government and increased scrutiny from plaintiffs’ attorneys, and review their independent contractor relationships for potential misclassifications.

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