1099 Employer Alert California has passed the "Worker Misclassification" Bill creating penalties for willful misclassification of Independent Contractors (i.e., "1099 employees"). The penalties are severe - between $5,000 and $25,000 per violation. Also, the law prohibits charging fees or taking deductions from their compensation. In addition to the monetary penalties, the employer found liable will be required to prominently display a notice on its Internet Web site (or if there is no website, in an area accessible to all employees and the general public) which states: (1) it has committed a serious violation of the law by engaging in the willful misclassification of employees; (2) it has changed its business practices to avoid further violations; and (3) that any employee who believes he is being misclassified may contact the Labor and Workforce Development Agency. The notice must include the mailing address, email address and telephone number of the LWDA and the notice must be signed by an officer or owner and must be posted for one year. The new law also provides that any licensed contractor who violates section 226.8(a) must be reported to the Contractors' State License Board, which must initiate disciplinary action against the offending contractor. But make no mistake, this law and the penalties applies to ALL California employers, whether contractors or not. Even a 5 person bagel store is covered. To prevent employers from avoiding these penalties and notice requirements, successor corporations or businesses are liable for the former entity's acts where one or more of the same principals or officers are engaging in the same or similar business. Finally, any person who advises an employer (e.g., your CPA or business advisor) to misclassify employees is also personally liable for those penalties. This does not include employees of the employer or attorneys who advise the employer. The bill, SB 459 adds two new Labor Code sections, 226.8 and 2753 which describes the new law. The new law will become effective almost immediately. This new law should be taken very seriously. If you already have Independent Contractors or 1099-employees, you should contact an employment attorney for full review of each person so classified. The potential civil penalties arising from this new law are astronomical. For example, consider the penalties for a worker improperly classified as an independent contractor who is charged a fee to rent equipment essential to perform his duties. The civil penalties for one year for this one individual could be tens of thousands of dollars depending on the interpretation of "each violation" and the penalty imposed. That penalty could rise into the hundreds of thousands of dollars if a court finds a pattern and practice of willful misclassification. Multiply that by dozens or hundreds of misclassified workers and the numbers spiral out of control.