Recently, Governor Brown signed into law multiple bills that will have an impact on California employers. One of the most significant soon-to-be laws is summarized below.

Senate Bill 459 prohibits the "willful" (i.e., voluntarily and knowingly) misclassification of workers as independent contractors. Employers are also prohibited from charging a misclassified individual a fee or making a deduction from the individual's compensation where such fee or deduction would have been prohibited if the individual were not an independent contractor. Examples of improper fees or deductions are those charged for goods, materials, space rental, services, government licenses, repairs, maintenance and fines arising from the individual's employment.

The penalties authorized to enforce this law are severe. An employer in violation of the law is subject to a civil penalty in an amount ranging from $5,000 to $15,000 per violation. If an employer is found to be engaged in a pattern or practice of violations, the penalty is increased to between $10,000 and $25,000. Additionally, on top of the harsh monetary penalties, an employer may be ordered to display on its web site (or if there is no web site, in an area accessible to employees and the general public) a notice explaining that the employer has committed a serious violation of the law by willfully misclassifying employees.

This law is one that employers must pay close attention to, as failure to comply could be drastic. Take, for instance, an employer who refuses on several occasions to repair equipment used by individuals who were misclassified as independent contractors. Rather than simply paying the cost of fixing the equipment, the employer could be forced to pay up to $25,000 for each time it neglected to do so. In addition, the employer could be forced to post a notice of the violation on its web site - causing substantial harm to its business reputation.

With these severe penalties in mind, what is most troubling for employers is that there is no bright line test for differentiating employees from independent contractors. Rather, employers can only look to a rather subjective, multi-factor test established by the Courts for guidance. As such, if your company currently has independent contractors under hire, or is considering classifying workers as independent contractors in the future, it is advisable to seek professional assistance to review and/or help make your classification determinations. Don't make this now even more critical decision a guessing game.