Misclassification of a California employee as an “independent contractor” or “exempt” employee can result in thousands of dollars of savings to companies and in many cases runs afoul of the California Labor Code. Attempting to misclassify an employee as an independent contractor allows an employer to avoid paying for workers’ compensation or unemployment taxes, avoid paying overtime, and avoid providing benefits such as sick time to workers who should otherwise be an employee. In some independent contractor cases, the worker who should be an employee actually ends up making less than minimum wage.
Misclassifying an employee as “exempt” allows an employer to avoid liability for missed meal and rest breaks as well as avoiding paying overtime to employees. This page focuses on misclassification of employees as independent contractors.
In examining any case involving an independent contractor, it is important to start with looking at the basic job functions of the worker. An independent contractor is defined in CA Labor Code Section 3353. Basically, this is anyone who performs a service for someone else for a set payment amount, but they control how the service is performed. The actual Labor Code language is a bit confusing at first glance, but what matters is who has control of the worker and whether the worker is free to control how the work is done.
In 2018, the California Supreme Court established what is known as the “ABC test” to determine whether a worker is an employee or an independent contractor in Dynamex Operations West, Inc. v. The Superior Court of Los Angeles County (2018) 4 Cal.5th 903. The case states that a worker is an independent contractor if the hiring entity establishes:
Typically, we use the example of a plumber to attempt to give an example to clients looking at how to apply this test. If you hire a plumber to come to your home and fix a leaky faucet, the plumber is clearly an independent contractor. However, if you actually run a plumbing company and hire someone to go fix the leaky faucet for a customer, that person fixing the faucet should likely be designated as an employee, not an independent contractor.
There are a lot of different scenarios where this situation can play out, especially with all of the gig economy employers utilizing workers as independent contractors. There are of course numerous exceptions and other examples that have to be looked at when dealing with a misclassification issue involving an independent contractor.
Misclassification of a worker as an employee instead of an independent contractor can result in a significant amount of damages that have to be calculated on a case-by-case basis. A full examination of how much the contractor was paid and the number of hours worked can result in violations of both minimum wage and overtime laws. In a lot of these cases employers can be held responsible for missed meal and rest breaks also.
If the employer willfully misclassified an individual as an independent contractor, the CA Labor Code has provisions with severe civil penalties that range from $5,000 up to $25,000 for each violation. This is in addition to other penalties and fines.
Failing to classify someone properly as an employee instead of an independent contractor is a violation of California Labor Law. Our office has recovered millions of dollars from companies in class actions and individual cases for employees who have been the victim of employers that attempt to skirt employment laws.
If you believe that your employer has incorrectly misclassified you as an independent contractor, call our office to set up a free consultation. We will run through all of the facts of your case and provide you with our opinion as to whether you have enough to take a case forward. All cases are handled on a contingency fee basis, so there is no fee unless we win.
For more information or to speak to a lawyer, call us at (619) 377-4660.