California backs off on tough provisions in proposed law for independent contractors

A controversial California bill that would punish firms for misclassifying employees as independent contractors was amended yesterday, lightening the compliance burden for broker-dealers.
The proposed law, SB 459, was originally introduced in February and championed by the state Senate majority leader, Democrat Ellen M. Corbett. The bill’s language initially punished firms for misclassifying employees as independent contractors, hitting them with fines as high as $25,000 for deliberately mislabeling their workers and charging fees or making deductions to their pay for any purpose.
Firms would also have had to archive for at least two years paperwork detailing a person’s independent-contractor status. It would have affected 59,309 reps, according to Meridian-IQ.
Yesterday’s amendments remove the paperwork-archiving requirements, but maintain the fines.
The bill had originally faced harsh criticism from the Financial Services Institute Inc., an advocacy group for independent broker-dealers, which argued that the legislation was really intended for employers looking to avoid paying taxes and benefits.
Registered representatives with independent broker-dealers, on the other hand, are small-business owners who run their own practices and manage their own costs.
Opponents were particularly concerned that similar legislation might spread, as California is often thought of as a bellwether state for labor laws.
“This win will hopefully temper any thoughts from other state legislatures about going down a path that will ultimately hurt hardworking Americans’ ability to secure affordable, unbiased financial advice,” said Dale Brown, FSI’s president and chief executive.
The changes put through yesterday by Ms. Corbett strike the record-keeping requirement, which would have forced employers to track payroll and wage records or else face a civil penalty of $500 for failure to maintain the paperwork or present it to regulators. Employers also will no longer have to provide a notice to the independent contractor explaining his or her status and the tax obligations related to it.
Another amendment states that firms that deliberately misclassify employees as independent contractors will have to display prominently on their website that the Labor and Workforce Development Agency or a court had found that they had broken the law and changed their business practices accordingly. The notice will have to stay up for two years and must be posted at the workplace if the firm doesn’t have a website.
The bill is to be heard by the state Assembly Appropriations Committee tomorrow. If it is passed by the committee and the entire Assembly, it will go to Gov. Edmund G. Brown Jr. to be signed into law.