It sounds like the Labor Commissioner (formally known as the Department of Labor Standards Enforcement) is acting upon the authority granted it in section 226.8 of the California Labor Code, which was signed by Governor Brown in 2011 and took effect last year. Under that new law, employers can be fined thousands of dollars by the Labor Commissioner for the "willful misclassification" of employees as independent contractors. Now, it's not entirely clear what "willful misclassification" means. However, if your mother was truly relying on a directive from a government entity in classifying her workers as independent contractors, then I'd imagine she'd at least have a good argument that her misclassification of her workers was not "willful." Nevertheless, even if she is successful in getting her fine reimbursed, she may be held liable for back taxes, overtime wages, and other penalties as a result of the misclassifications.
Certainly, your mother should begin treating her employees as employees rather than independent contractors, in order to "stop the bleeding" and avoid future fines.
Finally, she should consult with an experienced California employment law attorney regarding her situation.
The short answer is yes. If the employees should have been characterized as employees and not independent contractors, there is no element of knowledge to a successful claim. Whether or not the employer knew the law or not, there is liability. However, proving an unintentional mischaracterization might have an effect on other penalties or damages that might otherwise be assessed against an knowing offender.
Your mother's best move now would be to hire a competent and experienced employment law attorney to assess her risk and assist her in making changes, if necessary, before the DLSE moves against her.
Good luck to you and her.
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