Pending Legislation Seeks to Limit Penalties for Employers in California

By Tracy Wei Costantino & Kristel B. Haddad © Jackson Lewis June 4, 2020
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As California proceeds through the stages of reopening businesses in the wake of the COVID19 pandemic, the California state legislature is considering various bills to lighten the load for employers as they attempt to recover from the various degrees of business closures.

One such bill is AB 2457. Though the bill was introduced in February 2020, subsequent amendments were made to address the impact of the COVID19 pandemic and provide partial relief to employers by limiting audits and penalties against businesses that may have misclassified workers as independent contractors.

First, the bill seeks to prohibit an employer from being subject to a fine or penalty for a violation of the Labor Code, Unemployment Insurance Code, or Industrial Welfare Commission (IWC) Wage Orders when an applicant applies for unemployment insurance benefits and has acted as an independent contractor in the previous five years.

Second, the bill would amend the Labor Code Private Attorneys General Act of 2004 (PAGA), which authorizes an aggrieved employee to bring a civil action to recover civil penalties on his or her own behalf and other current or former employees that would otherwise be assessed and collected by the California Labor & Workforce Development Agency. If passed, the PAGA would not apply to an allegedly misclassified employee according to an IWC Wage Order if the employee:

  • Has filed for unemployment insurance benefits.
  • The employee's previous employer hired the employee as an independent contractor before Jan. 1, 2020.

Finally, the California Unemployment Fund as administered by the Employment Development Department (EDD) has established procedures for the filing, determination, and payment of benefit claims. The EDD is also empowered to audit claims, as specified by law. Proposed AB 2457 provides that an audit triggered under the federal Coronavirus Aid, Relief, and Economic Security Act (CARES Act) does not authorize the EDD or Labor Commissioner, with respect to a claim for unemployment insurance, to audit a previous determination of worker classification if the applicant designated themselves as an independent contractor or as self-employed during the past five years.

The proposed AB 2457 would repeal all three provisions on Jan. 1, 2026.

Other bills currently pending before the California state legislature seek to limit the application of the California Labor Code to independent contractors, in relation to the current COVID19 outbreak and otherwise.

Tracy Wei Costantino & Kristel B. Haddad are attorneys with Jackson Lewis in Los Angeles. © 2020 Jackson Lewis. All rights reserved. Reposted with permission.

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