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New Penalties For Misclassification Of Individuals As Independent Contractors

January 16, 2012

IC.jpgJanuary 1st is often the date that employment laws enacted during the prior calendar year go into effect. While many new laws are widely publicized, others seem to slip by unnoticed until an employer is informed that it has violated some rule that it never knew existed. Two recent additions to the California Labor Code are of particular importance to businesses that use independent contractors and individuals who advise those business as to the appropriateness of independent contractor classifications.

Starting on January 1, 2012, newly added California Labor Code section 226.8 imposes penalties ranging from $5,000 to $15,000 against a person or employer who is found to have "willfully" misclassified an individual as an independent contractor. In situations where a person or employer is found to have engaged in a "pattern or practice" of misclassifying individuals as independent contractors, the penalty to be imposed ranges from $10,000 to $25,000. The penalty is assessed per individual misclassified and is in addition to all other penalties/fines permitted by law. Businesses have always known that evaluating independent contractor relationships can be tricky and the risks for misclassification are great due to potential problems under applicable tax and employment laws. However, these new penalties could potentially cripple a business that makes a mistake with respect to the classification of multiple individuals who all provide the same type of service to the business. In addition to the imposition of penalties, Section 226.8 authorizes the California Contractors State License Board to initiate disciplinary action against a licensee who is found to have "willfully" misclassified an individual as an independent contractor.

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Make Sure You Know Your Obligations Under The California Transparency In Supply Chains Act

January 13, 2012

January 1st is often the date that laws enacted during the prior calendar year go into effect. While many new laws are widely publicized, others seem to slip by unnoticed until a business is informed that it has violated some rule that it never knew existed. One law, that is surprising a number of companies is the California Transparency in Supply Chains Act of 2010 (the "Act'). Signed by then Governor Arnold Schwarzenegger, the Act requires companies doing business in California to, by January 1, 2012, post information on their websites informing consumers what steps the company takes to ensure that its supply chains are free from slavery and human trafficking. Interestingly, unlike other laws, whether a company is subject to the Act is not determined by the number of individuals employed by the company or the fact that the company has contacts with areas of the world in which slavery and human trafficking are prevalent. Instead, the Act applies to all companies operating in California that have over 100 million dollars in annual worldwide gross receipts.

If a company satisfies the basic criteria to be covered under the Act, the company must post information on its website indicating what, if any, actions the company takes with respect to the following:
evaluating and addressing the risks of human trafficking and slavery in the company's product supply chains;

  • requiring the company's direct suppliers to certify that the materials incorporated into company products comply with laws regarding slavery and human trafficking;
  • conducting audits of the company's suppliers to evaluate compliance with company standards on human trafficking and slavery;
  • maintaining accountability standards and procedures for employees or contractors that fail to meet the company's standards regarding slavery and human trafficking; and
  • providing employees and managers, who have direct responsibility with supply chain management, with training on the mitigation of human trafficking and slavery risks.

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New Disclosure Requirements Mandated By The California Labor Code

January 12, 2012

Labor Code.JPGJanuary 1st is often the date that employment laws enacted during the prior calendar year go into effect. While many new laws are widely publicized, others seem to slip by unnoticed until an employer is informed that it has violated some rule it never knew existed. Even worse, an employer's obligations under certain laws are not fully identified until shortly before compliance is required. One such law that is causing a lot of confusion for California employers is the California Wage Theft Protection Act 2011 (the "Act"). Signed into law on October 9, 2011, the Act makes various changes to the California Labor Code including adding Section 2810.5. Section 2810.5 requires that starting on January 1, 2012, employers must provide all non-exempt California employees with a notice, given at the time of hire, which provides the following information:

  • the rate or rates of pay and basis thereof, whether paid by the hour, shift, day, week, salary, piece, commission, or otherwise, including any rates for overtime, as applicable;
  • allowances, if any, claimed as part of the minimum wage, including meal or lodging allowances;
  • the regular payday designated by the employer in accordance with the requirements of the California Labor Code;
  • the name of the employer, including any "doing business as" names used by the employer;
  • the physical address of the employer's main office or principal place of business, and a mailing address, if different;
  • the telephone number of the employer;
  • the name, address, and telephone number of the employer's workers' compensation insurance carrier; and
  • any other information the Labor Commissioner deems material and necessary.

While the specific disclosures identified in Section 2810.5 seem fairly clear, the "any other information the Labor Commissioner deems material and necessary" requirement has created a number of problems. As mandated by the Act, the Labor Commissioner has provided employers with a form Section 2810.5 notice that can be downloaded from the Labor Commissioner's website. However, the Labor Commissioner did not make the form notice available until the last week of December, 2011. Moreover, when the form notice was circulated, it became clear that the Labor Commissioner had added a number of disclosures not specifically identified in Section 2810.5. For instance, employers must also inform each new hire whether the employment relationship is governed by an oral or written contract and identify any other businesses or entities the employer uses to hire employees or administer wages/benefits. Since the Labor Commissioner did not issue the form notice until a few days before the new law went into effect, even those employers who knew about the requirements of Section 2810.5 were forced to scramble over the holiday weekend to revise their forms to make sure they covered all the information that had to be disclosed. Unfortunately, there are still many employers that do not know about the new information required by the Labor Commissioner or have no idea that non-exempt new hires must now be given the information discussed above. Given the risks associated with an employer's failure to comply with the requirements of Section 2810.5, it is recommended that all employers discuss the new disclosure requirements with legal counsel and determine how best to proceed.

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