California Employment Law
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I'm Lucy, and I'd be happy to answer your questions today. I'm sorry to hear about your situation.
Unless you have a contract that only provides for termination for cause, your employment is at will. At will employment unfortunately means that either party can terminate the employment at any time, for any reason - or no reason at all. What they're essentially doing is firing you and offering to rehire you at the lower salary. That is legal, even though their reasoning for doing it is that they were caught illegally not providing worker's compensation insurance). The options here are to accept the reduced salary and continue working there or reject the change and seek other employment.
They cannot retroactively decrease your salary or ask you to repay any amounts they've already given you. That would be illegal.
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Being an officer doesn't mean your employment isn't at will, unless you have a contract. You didn't mention a contract, so I can't assume you have one. Generic at-will employment applies to most employees. It IS legal for them to cut your salary because they're giving you notice. They're telling you now. The law doesn't require any more than that.
I apologize for not seeing the independent contractor comment. They cannot randomly change you. If you meet the requirements for an employee, you can report them to the IRS.
The IRS can ensure you're classified properly and make them take out taxes to cover you, but that unfortunately won't increase your salary. You still have to decide if you're willing to work there for the lesser amount. Improperly classifying an employee doesn't give rise to a private cause of action.
Do you have any other questions about this?