The recent decisive vote on Prop 22 is undoubtedly good news for businesses that use independent contractors. However, the state attorney general, three city attorneys and California’s labor secretary filed lawsuits against Uber and Lyft before the voters approved the measure. The attorneys argue that the rideshare platforms violated AB 5 when it was in effect that classified many gig workers as full-time employees.
Misclassifying a contractor
Some companies depend upon independent contractors to make their businesses viable, but misclassifying workers a risky proposition even with the passing of Prop 22. It’s important to remember that employers cannot arbitrarily decide to classify workers as contractors by getting them to sign a contract saying they are contractors. Like Lyft and Uber, companies that willfully misclassified their workers will face severe fines enforced by Labor Code section 226.8. These include:
- Civil penalties of $5,000 to $25,000 per violation
- Substantial fines from the IRS for the tax violation of reporting 1099 rather than W-2 income
- Payments (with interest) to employees for unpaid wages, unpaid overtime, unpaid meal and rest breaks
These issues are complicated
Before the arrival of AB5 and Prop 22, the safest bet for avoiding fines, other penalties, or a civil lawsuit was for managers and owners to assume that the worker was or will be an employee. With so many changes to the classifications and regulations, it is more essential than ever to speak with an attorney who handles employment law and employee classifications here in California. They can then possibly reclassify the worker if they qualify. Getting outside help can provide peace of mind in knowing that your business follows all current guidelines if you use independent contractors.