400 | 2023 Cal-Peculiarities ©2023 Seyfarth Shaw LLP www.seyfarth.com 19.11 Special Penalties for Willful Misclassification Labor Code section 226.8 provides that California employers must not willfully misclassify any individual as an independent contractor60 or assess against such an individual a deduction or fee that an employer could not lawfully assess against an employee.61 Penalties range from $5,000 to $25,000 per violation.62 Violators are also subject to an electronic Scarlet Letter: any entity found to have willfully misclassified one or more individuals must “display prominently on its Internet Web site” a notice confessing it “committed a serious violation of the law by engaging in the willful misclassification of employees”63 and declaring that it has changed its business practices to avoid committing further violations.64 Moreover, liability attaches to any “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 that individual” if the individual is found not to be an independent contractor.65 There is no private right of action under section 226.8.66 19.12 Dealing with Certain Labor Contractors A California business must not enter into an agreement for labor or services with certain contractors if the business knows or should know that the agreement fails to provide enough funds to allow the contractor to satisfy the applicable local, state, or federal labor laws or regulations. Contractors affected include construction, farm labor, garment, janitorial, security guard, and warehouse contractors.67 Any person or entity that breaches this obligation can be liable for the greater of actual damages or statutory penalties to workers who suffer injury from any labor law violations.68 The business must, upon request, give the Labor Commissioner a copy of the contractor agreement and other related documentation.69 A claim brought under this statute (against airlines that had contracted with a security company) failed because the plaintiff had failed to allege that the airlines had knowingly underfunded the contracts.70 Employers that use labor contractors are jointly liable with the labor contractor for paying wages to all workers whom the labor contractor supplies, and for the contractor’s failure to obtain valid workers’ compensation coverage.71 1 Lab. Code § 2750.3 2 See, e.g., Bain v. Tax Reducers, Inc., 219 Cal. App. 4th 110 (2013) (employee misclassified as independent contractor entitled to minimum wages, reimbursement of business expenses, and waiting-time penalties for failure to pay timely termination wages), rev. denied and ordered not to be officially published, No. S213850 (Cal. Dec 11, 2013). 3 Lab. Code § 3357 (“Any person rendering service for another, other than as an independent contractor, or unless expressly excluded herein, is presumed to be an employee.”) See also Lab. Code § 5705(a) (employer has burden to prove “affirmative defense” that “injured person claiming to be an employee was an independent contractor”); S.G. Borello & Sons, Inc. v. Dep’t of Indus. Relations, 48 Cal. 3d 341, 349 (1989) (“One seeking to avoid [workers’ compensation] liability has the burden of proving that persons whose services he has retained are independent contractors rather than employees.”); Antelope Valley Press v. Poizner, 162 Cal. App. 4th 839, 855 (2008) (for purposes of workers’ compensation insurance, persons who delivered newspapers to daily subscribers were employees of the publisher, not independent contractors, where publisher maintained significant supervision over the carriers, controlled the price paid by subscribers, based payment for carriers on the number of papers delivered per day, supplied materials and facilities the carriers used, did not hire the carriers to achieve a specific result attainable within a finite period, and was better suited than the carriers were to distribute the cost of onthe-job injuries as a business expense). 4 See e.g., Grant v. Woods, 71 Cal. App. 3d 647, 652, 654 (1977) (focusing on whether individual was employee “for purposes of the Unemployment Insurance Act” and demanding “[c]lear evidence … to defeat the beneficent purposes of the legislature established in the [Unemployment Insurance] code”). 5 See Santa Cruz Transp., Inc. v. Unemployment Ins. Appeals Bd., 235 Cal. App. 3d 1363, 1367 (1991) (“The burden of establishing an independent contractor relationship is upon the party attacking the determination of employment.”). 6 Lab. Code § 2750.5 provides in part: “There is a rebuttable presumption affecting the burden of proof that a worker performing services for which a license is required pursuant to Chapter 9 (commencing with Section 7000) of Division 3 of the Business and Professions Code, or
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