New California Law Penalizes Employers for Willful Misclassification of Independent Contractors in 2012

Effective January 1, 2012, a new California law – Senate Bill 459 (SB 459) – imposes stiff penalties that range between $5,000 to $25,000 for the “willful misclassification” of independent contractors by employers “avoiding employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor.” To read SB 459, visit:

Introduced by Senator Ellen Corbett (D-San Leandro) and signed into law by California Governor Jerry Brown in October of 2011, SB 459 adds Sections 226.8 and 2753 to the Labor Code, relating to employment. SB 459 also imposes joint liability on a person who, for money or other valuable consideration, “knowingly advises an employer to treat an individual as an independent contractor to avoid employee status.” However, this section of SB 459 does not apply to:

  • A person who provides advice to his or her employer.
  • An attorney authorized to practice law in California or another United States jurisdiction who provides legal advice in the course of the practice of law.

As for monetary penalties, if the Labor and Workforce Development Agency or a court issues a determination that a person or employer has engaged in any violations of SB 459, the person or employer shall be subject to a civil penalty of:

  • Not less than $5,000 and not more than $15,000 for each violation, in addition to any other penalties or fines permitted by law.
  • Not less than $10,000 and not more than $25,000 for each violation, in addition to any other penalties or fines permitted by law, if the person or employer has engaged in or is engaging in a pattern or practice of these violations.

As previously reported on the ESR News blog ‘California SB 459 Enacts Stiff Penalties for Employers Willfully Misclassifying Workers as Independent Contractors,’ the passing of AB 459 and the growing trend of scrutinizing worker classification relates to the background screening industry since some background screening firms use at-home workers to make verification phone calls that may be misclassified as independent contractors. Employers need to be careful using background screening vendors that rely upon misclassified workers since an audit may adversely impact the ability of the vendor to maintain services.

In his article ‘The Dangers of Treating Home Operators as Independent Contractors,’ Attorney Les Rosen, founder and CEO of nationwide background screening company Employment Screening Resources (ESR) and author of ‘The Safe Hiring Manual,’  reveals that some background screening firms treat at-home workers as independent contractors: “The screening firm often has regular employees at the main office doing the same work, so that the so-called “independent contractors” are doing what regular employees do, but without a regular salary, or any benefits.”

However, Rosen writes that the Internal Revenue Service (IRS) and state agencies “have the authority, which they exercise, to conduct extensive audits of a business to determine if the classification was correct. If the IRS or state agencies determine that workers should have been classified as employees, then the business can be subject to fines, penalties, back taxes, and lawyer’s fees.”

As a result of trying to avoid treating at-home workers as employees, Rosen indicates that background screening firms can potentially face liability for federal and state payroll taxes that should have been paid for misclassified workers, substantial penalties to the IRS or state, fees and damages if litigation is involved, and responsibility for benefits and overtime pay the independent contractors would have received if classified as employees.

The article ‘The Dangers of Treating Home Operators as Independent Contractors,’  is available at:

Employment Screening Resources (ESR) – a nationwide background check firm accredited by The National Association of Professional Background Screeners (NAPBS®) – does not rely upon home based operators to perform employment and education verifications. To learn more about ESR, visit or call toll free 888.999.4474.

About Employment Screening Resources (ESR):
Founded in 1997 in the San Francisco, CA area,
Employment Screening Resources (ESR) literally wrote the book on background screening with “The Safe Hiring Manual” by ESR Founder and CEO Lester Rosen. ESR streamlines the screening process and reduces administrative overhead though its proprietary technology solutions.  ESR is accredited by The National Association of Professional Background Screeners (NAPBS®), a distinction held by less than two percent of all screening firms. This important recognition was achieved by successfully passing a third party audit demonstrating compliance with the NAPBS Background Screening Agency Accreditation Program. By choosing an accredited screening firm like ESR, employers know they have selected an agency that meets the highest industry standards. For more information about ESR, visit or call toll free 888.999.4474. 

About ESR News:
The Employment Screening Resources (ESR) News blog –
ESR News – provides employment screening information for employers, recruiters, and jobseekers on a variety of topics including credit reports, criminal records, data privacy, discrimination, E-Verify, jobs reports, legal updates, negligent hiring, workplace violence, and use of search engines and social network sites for background checks. For more information about ESR News or to send comments or questions, please email ESR News Editor Thomas Ahearn at