Do California’s Worker Protection and Tax Laws Apply to Me?
While there are many new licensing, regulatory, and tax provisions created by Proposition 64, the existence of marijuana businesses operating as employers means that they must also comply with worker protection and payroll tax laws. This article touches on criminal enforcement of a select few of the many laws that business owners must follow, not to mention regulations and the potential civil or administrative liabilities for violations.
California’s workplace protection laws are some of the strictest in the nation. The regulatory scheme includes criminal statutes. Labor Code section 1199 provides criminal penalties for employers who violate minimum wage, overtime, and other regulations with respect to their employees. Labor Code section 3700.5 requires that employers in California must provide workers compensation insurance to cover their employees in the event of an injury and the failure to do so can result in criminal charges, fines exceeding $10,000, and jail time.
Similarly, California’s payroll tax laws impose significant responsibility on the employer to pay over those taxes to the State, part of which is on behalf of the employee. Unemployment and Insurance Code section 2118 includes fines and potential jail time for employers who fail to pay over payroll taxes, even if the employer did not intend to evade the tax laws. Of course, intentional tax evasion is a more serious matter and can result in felony fraud charges.
One scheme to avoid minimum wage and payroll tax is to misclassify employees as independent contractors. The Department of Industrial Relations (DIR) and the Employment Development Department (EDD) both provide extensive information to California employers on their websites about employee and independent contractor determination. The DIR page, “Independent Contractor Versus Employee” is available at https://www.dir.ca.gov/dlse/faq_independentcontractor.htm. EDD’s checklist format “Employment Determination Guide” is available at http://www.edd.ca.gov/pdf_pub_ctr/de38.pdf. Nevertheless, Contra Costa County continues to find employers in various licensed industries, including construction companies and nursing care homes, who attempt to justify wage theft and tax evasion using obvious misclassifications.
A victim impact statement from an employee at a sentencing hearing for wage theft involving a medical marijuana business stated,
Working for [redacted] was the most rewarding experience because I got to work with cannabis patients that legitimately benefit from cannabis for their medical ailments. It is unfortunate that it is also the most detrimental job I have ever had, in the sense that [redacted] was not responsible about his business practices. Working in the cannabis industry is a sensitive area where the business owner must comply and adhere to legal expectations such as maintaining proper documentation and paying appropriate taxes.
During my time at [redacted], the job took up a large portion of my life. I was not bothered by that until I felt like [redacted] was taking advantage of me by having me work overtime without paying overtime . . . I poured my heart and soul into helping the company grow because I believe in providing quality medicine and product for cannabis patients . . . I ended up loosing [sic] the house I was renting in [redacted] and had to move my life to [redacted] to avoid becoming homeless again.
As marijuana businesses become a reality, employers would be wise to create an industry culture of compliance, not only with the special provisions and taxes created by Proposition 64, but also with California’s strict worker protection and payroll tax laws.