Are you a San Diego employer who uses 1099 workers as part of your business operations?  How could the misclassification of employees as 1099 workers increase your risk of litigation and expose your company to substantial penalties and financial damages?  Why should you give serious consideration to how you structure the classification of employees to avoid 1099 worker misclassification audits, penalties, and other financial consequences?

Recent Changes in California and Federal Law

You’ve probably become aware of recent changes in California and federal laws. There has been a lot of conversation in the past few years regarding the Dynamex decision and it’s impact upon 1099 workers in California.  The California Employment Development Department or EDD audits every California business on a 3 year cycle.  It isn’t a question of whether or not you will be audited.  The first question the EDD auditor will ask is “Do you have any 1099 workers?”  What will follow could result in fines and penalties of tens or hundreds of thousands of dollars per employee going back years.

The second most common way for the EDD to become aware of potentially misclassified employees is when you terminate a worker and they file for unemployment.  A simple investigation of that claim opens the door to substantial legal and financial risk for your company.

The Impact of Recent Court Decisions on a San Diego and Southern California Employer

What is the impact of recent court decisions on a San Diego and Southern California employer?  California is desperately attempting to raise tax revenues and the misclassification of employees as 1099 workers is a primary target for state agencies.

Recently, the Supreme Court of the United States (SCOTUS) and the Supreme Court of California changed the nature of independent contractors and the relationship between 1099 workers and the company who uses them.  It used to be primarily an issue of control.  Today, the primary driver is the financial relationship between the parties.  The SCOTUS ruling has established a benchmark followed by the US Department of Labor or DOL, the IRS and California’s state agencies including the EDD.

The result of the Dynamex case here in California is the establishment of a crucial new legal distinction: In California, all workers are legally presumed to be an employee and the burden of proof now falls to the employer to legally defend any 1099 or independent contractor classification.  Dynamex resulted in the imposition of the “A-B-C Test.”

In order to classify any worker as a 1099 worker or independent contractor, the employer is required to prove:

• “that the worker is free from control and direction over performance of the work both under the contract and in fact.” and
• “that the work provided is outside the usual course of the business for which the work is performed,” and
• “that the worker is customarily engaged in an independently established trade, occupation or business.”

Most present 1099 workers and independent contractors will not meet one or more of the above requirements.

Stiff Penalties for the Misclassification of Employees as 1099 Workers in San Diego and Southern California

There are stiff penalties for the misclassification of employees as 1099 workers in San Diego and Southern California.  The law provides for a “four year lookback” for the collection of associated unpaid employment related taxes, workers compensation and FICA.  In addition, a misclassification assessment allows a misclassified employee to seek compensation such as unpaid overtime, and financial compensation for all benefits they would have received as an employee.

Plaintiff’s attorneys are heavily advertising for any such worker to pursue a PAGA action against area employers.  The legal and financial stakes could not be higher and often threaten the financial viability of affected companies.

The business and employer defense attorneys at the Watkins Firm help our clients to review existing 1099 worker and independent contractor relationships in context of new labor laws.  We help employers to avoid catastrophic financial consequences that have forced the closure of many other businesses and work to bring our clients into compliance with local, state and federal employment laws.

We invite you to review our Podcast Episode 28 – Common Employer Disputes and Defenses the strong recommendations of our clients and contact the Watkins Firm or call 858-535-1511 for a complimentary consultation today.