CalChamber in Court: Don’t Make One Employer Liable for Another’s Independent Contractor Misclassification

Also signing the brief in the case of Noe v. Superior Court were the U.S. Chamber of Commerce and the Civil Justice Association of California.

The brief urges the California Court of Appeal to reject the theory that a company can engage in “willful misclassification” under California Labor Code Section 226.8 simply because it contracts with another company that is alleged to have improperly classified employees as independent contractors.

The brief explains that the plaintiffs’ theory ignores the plain meaning of the statutory text and would unreasonably impose severe liability, including civil penalties, on companies that had no control over the allegedly improper decision.

“Willful misclassification” requires a voluntary act on the part of the person or employer in conjunction with the intent to knowingly treat an employee as an independent contractor. Even if a business is a joint employer, it can never be automatically liable for another business’s willful misclassification under the Labor Code without that showing of specific intent.

Otherwise, companies that enter into legitimate arms-length transactions would automatically become jointly and civilly liable for other companies’ employment decisions, even if those decisions were made years before the relationship began and without the contracting company’s knowledge. The potential civil penalties are high depending on the number of violations and the number of individuals involved. The theory adds yet another layer of complexity and confusion to California’s numerous, written and unwritten, diverse independent contractor rules.

The petitioners’ position goes far beyond the statutory text and the Legislature’s intent, which was to reach only those employers and persons that knowingly and intentionally misclassify employees as independent contractors.

The brief urges the Court of Appeal to uphold the trial court decision that correctly construed “willful misclassification” as meaning the employer must act voluntarily and knowingly before being subject to liability.

Staff Contact: Erika Frank