A controversial California bill that would punish firms for misclassifying employees as independent contractors was amended last week, 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 representatives, according to Meridian-IQ, a firm that runs a database on financial advisers.
The 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 reps 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, the FSI's president and chief executive.
The changes put through last week by Ms. Corbett strike the record-keeping requirement, which would have forced employers to track payroll and wage records or face a civil penalty of $500 for failure to maintain the paperwork or present it to regulators. Also dropped was a requirement that employers notify 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 found that they had broken the law and that they 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 was passed by the state Assembly Appropriations Committee last week. If the entire Assembly passes it, it will go to Gov. Edmund G. Brown Jr. to be signed into law.
Email Darla Mercado at [email protected]
