A contractor discovers that a subcontractor has been misclassifying employees as independent contractors under AB5. The contractor could face liability for:
Correct Answer
C) Joint liability for unpaid wages, taxes, and penalties
Under California law, contractors can face joint and several liability with subcontractors for unpaid wages, taxes, penalties, and other employment-related obligations when workers are misclassified.
Why This Is the Correct Answer
California law imposes joint and several liability on general contractors for their subcontractors' violations of wage, tax, and employment laws. Under Labor Code Section 2810.3 and related provisions, a contractor who knows or should know of a subcontractor's misclassification can be held jointly liable for unpaid wages, payroll taxes, and associated penalties — not just a capped fine.
Why the Other Options Are Wrong
Option A: Nothing, as subcontractor classification is not the contractor's responsibility
Saying the contractor bears no responsibility is incorrect. California deliberately created joint liability to incentivize general contractors to vet and monitor their subcontractors' compliance with employment law. Ignorance or delegation of supervision does not insulate the GC.
Option B: Penalties only if they directly supervised the workers
Limiting liability only to situations where the contractor directly supervised the workers misstates California law. Joint liability attaches based on the contractual relationship between the contractor and subcontractor, not on the degree of direct supervision exercised.
Option D: Administrative fines up to $5,000 maximum
A $5,000 administrative fine cap does not reflect the actual exposure under California law. Joint liability for unpaid wages and taxes on a workforce can reach tens or hundreds of thousands of dollars — far exceeding any nominal fine ceiling.
Memory Technique
Think of the GC as the 'deep pocket guarantor.' If the sub can't pay, California looks up the chain to the GC. 'Joint and several' means the injured worker or the state can collect the full amount from either party.
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