Willfull Missclassification

Noe v. Superior Court – It is a Violation of the Labor Code to Willfully Misclassify Employees as Independent Contractors.

In June 2015, the California Court of Appeal – 2nd District, issued its decision in Noe v. Superior court, which provided that California Labor Code § 226.8 makes it unlawful for an employer to engage in the willful misclassification of an employee as an independent contractor. Willful misclassification is defined as “avoiding employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor.” The Court further held that § 226.8 does not provide for a private right of action; however a company that is aware of a violation may still be penalized by the State.

The Decision:

The Court of Appeal ultimately held that the trial court incorrectly interpreted the phrase “engaged in” within the meaning of § 226.8, it means to participate or be involved in, therefore the section can extend beyond the employer who actually made the misclassification to anyone who was involved in it. Because the purpose of the statute is to prevent an employer from engaging in the act of willful misclassification, liability only extends to the employers who actually participate in the misclassification. Therefore an employer cannot be penalized under    § 226.8 on their status as co-employer.

The court also concluded that § 226.8 does not provide for a private right of action. There is no language in the statute indicating that the penalty is directly recoverable by the employees, which means that the provision is only enforceable by the Labor Commissioner and employees cannot bring a private suit.

What this Means for Employers:

This means that any employer involved in the voluntary and knowing misclassification of employees can be liable under California Labor Code § 226.8. An employer is not shielded from liability just because he did not make the actual misclassification. This prevents an employer from utilizing a lower-tier, joint employer to make employee classifications in order to evade civil penalties.

This also means that an employer cannot be liable based on his status as a co-employer alone. Because the purpose of the statute is to penalize an employer for engaging in misclassification, the employer must have actually taken part in the misclassification in some way. An employer cannot be liable under the statute if he has no knowledge of the misclassification. Therefore an employer is not liable for merely employing an individual who has been misclassified or based on co-employer status alone.

The fact that the statute does not provide for a private cause of action means an employee cannot bring a lawsuit against the employer; the penalty for a violation is enforceable only through the Labor Commission.