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California Clamps Down on 1099 Hires

California law now calls for major financial penalties for companies that misclassify "employees" and "freelancers."

California production companies now face significant financial risk if they pay workers "under the table" or hire 1099 workers that should have been classified as employees.  

These bills were signed into law in October by California Governor Jerry Brown; They go into effect on January 1, 2012.   

The new law provides for civil penalties of $5K to $15K for each violation (in addition to penalties already permitted by law). The cost can go up to $10K to $25K for each violation if the employer has a pattern of willful misclassifiying independent-contractors. Licensed contractors could be subject to disbarment if they are found in violation.  

The new legislation makes anyone who assists companies liable if they knowingly advise employers to misclassify employees as independent contractors. While licensed attorneys and HR employees are exempt, consultants and tax advisors are specifically not excluded.

Any employer found to have willfully misclassified employees as independent contractors may be required to post a notice regarding the violation(s) on their website or in an area accessible by all employees and customers for up to 1-year following the violation. Such posting likely will be reviewed by attorney seeking targets for wage and hour class actions.