With the sudden outbreak of COVID-19 forcing businesses to shut their doors for months, coupled with resulting furloughs and layoffs, California employers could use a helping hand. Assemblywoman Melissa Melendez (R-Lake Elsinore) has proposed new legislation to the California Legislature that could lend a helping hand to employers, especially smaller employers grappling with the impact of the COVID-19 pandemic. Assembly Bill 2457 (the Bill) seeks to alleviate penalties and taxes for employers that may have misclassified workers as independent contractors. This is important, especially in light of the Legislature’s tightening of its employee/independent contractor misclassification test via the passage of Assembly Bill 5 (AB 5), now codified at California Labor Code Section 2750.3(a)(1).

First, the Bill would eliminate fines and penalties assessed against employers for violations of the California Labor Code, Unemployment Insurance Code or Industrial Welfare Commission (IWC) wage orders where an individual has applied for unemployment benefits and has acted as an independent contractor during the past five years. Second, the Bill would limit the applicability of the Private Attorneys General Act (PAGA) by making it inapplicable to an allegedly misclassified worker according to the IWC wage orders if that worker has filed for unemployment insurance benefits and was hired by his or her previous employer as an independent contractor before Jan. 1, 2020. Third, while the Employment Development Department (EDD) is empowered with procedures for processing and investigating benefits claims, the Bill would eliminate the EDD’s ability to audit employers if the audit is triggered by the federal Coronavirus Aid, Relief, and Economic Security Act (CARES Act) if the worker in question was classified as self-employed or an independent contractor in the past five years.

The Bill is significant in that it seeks to reduce the impact of the Legislature’s passage of AB 5 by obviating the potential fines, penalties and audit liability discussed above. While under the Bill all three proposed provisions would be repealed on Jan. 1, 2026, employers of all sizes in the state of California would stand to benefit from its passage, especially in light of the impact AB 5 has had on California employers.

The Bill originally was given a hearing in March before the Employment and Labor Committee, but the hearing did not go forward due to the COVID-19 outbreak and subsequent statewide closures. The Bill was then adapted to its current form to include COVID-19-related language and is expected to be given a hearing as soon as the statewide closures due to COVID-19 are lifted.

BakerHostetler will continue to monitor the Bill to see whether California employers will receive a bit of relief during extremely challenging times.