California contract worker bill could bring employers lawsuits, fines for misclassifying workers

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A California bill that is likely to become law could be enforced through fines and lawsuits against employers that improperly classify workers as contractors instead of employees.

That is according to North Bay labor attorneys who say if Gov. Gavin Newsom signs the bill, Assembly Bill 5, companies large and small will need to carefully scrutinize how they classify and pay their workers when it takes effect Jan 1. Newsom previously expressed support for the bill in a newspaper editorial and seems likely to sign it into law.

The bill codifies a landmark California Supreme Court decision from last year establishing a three-part test to determine if workers are employees or contractors. That matters because the goal of the bill and that decision is to end employers’ misclassifying workers as contractors to avoid paying them benefits and covering other employment-related costs.

Contractors are much cheaper and the bill will force many employers to decide whether to take on the costs of current contractors as employees or let them go.

The bill has passed the state Assembly and Senate earlier this week and was headed to Newsom’s desk as of noon Sept. 13.

If a worker does not satisfy all three steps, they would be considered employees and treated as such under the law.

“I really think that it’s important for employers to consult attorneys,” said Rachael Mache, a civil litigation attorney at Beck Law P.C. in Santa Rosa who represents employers and employees in labor disputes. “A misclassification lawsuit can be very, very expensive.”

Mache said the responsibility to properly classify employees falls on employers. She added that one way the potential law will be enforced is through workers bringing complaints to the state or in court. They can bring a complaint to the Labor Commissioner’s Office or litigate a claim in court.

She noted AB 5 creates civil penalties for businesses of $5,000 to $25,000 per willful violation of worker classification.

Mache said she has already begun sitting down with existing clients to comb through their employment rolls ahead of the possible signing of the bill to ensure they are toeing the legal line ahead of time and not misclassifying workers.

And attorneys, not just employees, will have incentive to bring cases on behalf of employees according to Scott Lewis, a labor lawyer at Perry, Johnson, Anderson, Miller & Moskowitz LLP in Santa Rosa.

He noted that generally speaking the California labor code allowed employees bringing a successful legal action to have their attorney’s fees paid for by an employer, incentivizing suits on the part of lawyers.

Lewis also noted however that many misclassified employees currently may be benefiting from being treated as a contractor when they are really an employee under the impending law.

“It’s a two-way street,” he said. “There’s a lot of times when an employee wants that relationship and an employer wants that relationship.”

Lewis noted that employers avoid paying taxes and deductions among other costs with contractors. Employees can benefit through increased flexibility and other freedoms.

But those illegal working arrangements can come to a crashing halt if the contract worker experiences an accident or gets injured while at work and isn’t covered by worker’s compensation insurance.

“Their first stop is to go to the (California Employment Development Department) with a claim” Lewis said. He noted the lack of insurance means the money would have to come out of the employer’s pocket, “just like if you don’t have insurance for a car accident.”

An ongoing friction point between the bill’s author and businesses has concerned professions that do not want to be called employees and who value their contractor status, feeling they are not being exploited.

And whether the bill applies to a person largely depends on what industry they work in.

Many professions received exemptions from AB 5 as it moved through the state legislature, allowing them to be held to the previous standard that makes it easier to classify people as contractors.

Those professions include include physicians, surgeons, dentists, podiatrists, psychologists, veterinarians, lawyers, architects, engineers, private investigators, travel agents, graphic designers, grant writers, fine artists, and many more.

Perhaps the largest row has been the bill’s author’s refusal to exempt drivers for apps Lyft and Uber, classifying them as employees entitled to benefits.

During a press conference last week an Uber representative said the company would not classify drivers as employees, adding the company did not fear litigation.

Lewis said the situation with Uber could be ripe for a class action lawsuit if drivers band together and bring the case to federal court.

Under AB 5 the California Attorney General’s office could also bring suits on behalf of wrongly classified employees as could a city attorney of a city having a population in excess of 750,000 people.

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