The new year brings with it a host of laws that were signed by Governor Brown this past fall. In fact, there were 750 bills that were sent to the Secretary of State and chaptered in 2011. Most of these became effective January 1. A number of new laws reflect intensified efforts by policymakers to address the abuses in the underground economy. Given the state of the "above ground" economy, and the State of California's fiscal distress, getting all businesses to play by the rules has a new sense of urgency in Sacramento and across the State.
To aid in the ramping up of this effort, Governor Brown signed Assembly Bill 469 (Swanson), the Wage Theft Prevention Act of 2011, and Senate Bill 459 (Corbett). AB 469 requires a new notice by an employer at time of hire that sets forth certain basic wage and hour information as well as contact information for the employer and the employer's workers' compensation insurer. This new form is available at the Department of Industrial Relations (DIR) website. While many of us may think this is standard operating procedure for all businesses, one influential study done by UCLA, "Wage Theft and Workplace Violations in Los Angeles" (2010) documented widespread violations of California's wage and hour laws, workers' compensation laws, and employment classification laws (independent contractors). AB 469 allows an employee to recover attorneys fees for actions to enforce a court order for unpaid wages.
SB 459 creates significant new liabilities for the willful misclassification of an employee as an independent contractor. These liabilities include joint liability for any non-attorney who advises an employer to misclassify an employee as an independent contractor. Among the law's provisions, the Labor and Workforce Development Agency is now required to report to the Contractors State License Board any contractor who is fined under this new law. Also, an employer who has been found to have committed a serious violation is required to post a notice either on its website or in a place visible to all employees and the general public, signed by an officer of the business, that it has violated this new law and provide a number for any other employee who feels they have been misclassified to contact the Labor and Workforce Development Agency.
To emphasize the priority given to combating the underground economy, the Department of Industrial Relations announced the creation of the the Labor Enforcement Task Force (LETF) in late December of 2011. The Labor Enforcement Task Force includes the Department of Industrial Relations, the Employment Development Department (EDD), the Contractors State License Board, the Board of Equalization, and the Bureau of Automotive Repair. In addition, the Labor Enforcement Task Force will work closely with Insurance Commissioner Dave Jones and Attorney General Kamala Harris.
As noted by the California Department of Justice (DOJ), the Attorney General's Office "...has prosecuted cases involving: wage, tax, and insurance issues including the theft of wages, unpaid overtime, denial of breaks, and misclassification of employees as independent contractors; patterns of safety violations leading to fatal workplace injuries; workers' compensation insurance premium fraud; and the illegal avoidance of workers' compensation coverage for employees."
Clearly, the creation of the Labor Enforcement Task Force is designed to increase scrutiny over businesses who seek to avoid their obligations and to bring more cases to the Department of Justice and local district attorneys for prosecution. The underground economy is a multi-billion dollar problem, estimated to cost California $7 billion in annual lost tax revenues. Given California's $13 billion budget deficit, it is easy to see why enforcement efforts are ramping up. But lost tax revenues are only part of the costs generated by unscrupulous employers. Misclassifying employees as independent contractors or misreporting wages also drives up workers' compensation costs for insured employers. It should also come as no surprise that employers who are breaking the rules when it comes to wages, hours, and classification of employment are also more likely to pay for workplace injuries under the table, if at all.
California's employment laws are complex and the penalties for non-compliance significant. AB 469 and SB 459 will add to that complexity. But one thing is clear — the State of California intends to enforce these new laws very aggressively and employers who think they can cut corners in order to reduce their labor and insurance costs will be in for a long and costly legal battle.
