Q: Can retroactively reclassifying IC to employees, ammend returns, pay EDD/IRS penalties counter a misclassification suit?
If a small business that is being sued for misclassifying employees as independent contractors, and the they choose to ammend payroll taxes, tax returns and retroactively reclassify these individuals, will it help in their position for the lawsuit? The plaintiffs were deceptive from the start and begged the owners who took them in like family to classify them as independent contractors since they claimed they contracted elsewhere. The small business owners would like to retroactively reclassify them, pay all penalties and ammend returns, but want to make sure it will not further them at a disadvantage with the legal case. The profession involved are youth sport coaches which falls under Governor Gavin Newsom's signed AB 2257, which immediately exempted them from the ambit of AB5.
A:
It is wise that you think proactively, but you should not do anything until you have retained your defense attorney who can then guide you through the best way to deal with the alleged liability. And you should not try to defend this case yourself. These kinds of cases can be bet-your-company types of cases.
Keep in mind that whether you characterize it at deceptive, you as the employer have the sole legal duty to handle employees in compliance with the law. Employees will never be held to be culpable for their misclassification.
Good luck to you.
Robert P. Cogan agrees with this answer
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