Employee Misclassification

Employee Misclassification

Approximately 12.5 million people in the United States are classified as independent contractors, not employees, according to Princeton and Harvard economists. This represents more than 8% of the entire U.S. workforce. The number of independent contractors has exploded in recent years with an ever-increasing number of people who are not subject to meal and rest breaks, overtime pay, minimum wage pay protections, among other benefits and protections of regular employment.

While independent contractors are an important part of many California industries, including construction, consulting firms, and film studios, many employees are intentionally misclassified as independent contractors by their employer to avoid providing employees with the benefits and compensation they deserve.

There are two important distinctions between workers under California law:

  • Exempt vs. non-exempt employees
  • Employees vs. independent contractors

Employees lose out on billions in unpaid wages and benefits due to misclassification as independent contractors. It also costs the state and federal governments substantial losses in tax revenue. The California Labor Commission estimates that misclassification of independent contractors alone costs the state about $7 billion every year in lost payroll taxes.

If you believe you have been misclassified by your employer, immediately contact a California employment lawyer who can determine if you have been incorrectly classified and denied payment of benefits and fair compensation.

Difference Between an Employee and Independent Contractor in California

A worker must be classified as an “employee” to qualify for certain labor protections. When someone is classified as an independent contractor, they are not subject to requirements for overtime, rest breaks, minimum wages, and health care benefits, among others.

The distinction between an employee and independent contractor hinges on how much the employer controls how, where, and when the worker performs their job. In simple terms, the more control the employer has, the more likely someone is actually an employee instead of an independent contractor.

Independent contractors are more independent in their work. While an employer may make requests for the independent contractor’s results, the independent contractors are responsible for themselves. Common markers of an independent contractor include:

  • Retains control over work hours and schedule
  • Paid by the job, not an hourly wage
  • Work is a one-time or short-term task, not ongoing
  • The contractor uses their own tools, materials, or equipment
  • The job requires specific expertise or skills

Employees have the right to sue and recover damages if they are misclassified as independent contractors in California.

What Is Exempt Employee Misclassification?

Even workers who are classified as employees can be misclassified as “exempt.” Some employees are legally exempt from labor law protections like rest breaks and overtime pay. An employee may be legally exempt if they belong to one of the established exemptions, such as an executive, professional, and administrative. Each of these exemptions has requirements that must be met to ensure the employee has not been misclassified.

For example, the administrative exemption requires that the employee meet the requirements of three tests:

  • Salary level test which means the exempt employee earns at least $455 per week/$23,660 per year and
  • Job duties test which means the exempt employee’s primary role involves using independent judgment to complete non-manual and office work.

Benefits and Protections for Non-Exempt Employees

When someone is labeled as an employee, they enjoy protection under California labor laws. For example, employees are eligible for workers’ compensation if they are injured on the job. Unfortunately, some employers attempt to save money on taxes and insurance by taking advantage of employees and claiming an employee is “exempt” or an independent contractor. A misclassified employee is then denied access to important labor protections and benefits like overtime compensation and a minimum wage.

Misclassified employees:

  • Must pay Medicare and Social Security taxes out of pocket
  • Are ineligible for employee health care coverage
  • Do not have the right to overtime pay, rest breaks, sick pay, or a minimum wage
  • Cannot receive workers’ compensation benefits if they are hurt on the job
  • Cannot receive unemployment benefits and
  • Do not have FMLA protection for medical and family leave.

New Misclassification Test in California

In 2018, the California Supreme Court made a groundbreaking decision that makes it harder for employers to classify workers as independent contractors. This decision was based on a case involving delivery drivers, but it affects almost every industry in California, including the gig economy and rideshare drivers.

The Supreme Court adopted a new standard to determine if a worker is an employee or an independent contractor. Under the new “ABC” test, someone is presumed to be an employee unless three factors are established by the employer:

  • The worker is not under the direction or control of the employer in connection with job performance. This must be true under the contract for the job and in practice.
  • The worker performs work outside the typical course of the employer’s business. If the worker has a role that is clearly comparable to those of employees who would typically be viewed by others as working in the employer’s business, the worker should be classified as an employee. For example, a bakery that hires someone as a cake decorator could not meet this standard and the worker would be an employee.
  • The worker is engaged in an independently established trade, business, or occupation of the same nature as the work performed by the employer. If the worker has independently chosen to go into business on their own, they are likely an independent contractor. If they are designated as an independent contractor by the hiring company, they are likely an employee.

Under this new standard, even Lyft and Uber drivers can be classified as employees because the companies’ typical course of business is providing rides. This has been a hotly contested issue across the United States. These rideshare companies have historically argued that they are not ridesharing company and that they are merely technology companies that provide the drivers with a platform for them to carry out their work.

Changes to many industries will take time, however. Unless a company chooses to reclassify workers to avoid potential penalties and lawsuits, many will wait until they are sued by workers or the state and present a legal argument as to why its independent contractors are classified correctly.

Contact a California Employment Attorney

If you believe your employment status is misclassified, it’s important to take immediate action to protect your rights and fight for your unpaid compensation and benefits. An experienced California employment lawyer can help you file a misclassification lawsuit to recover unpaid wages and stop the illegal and unethical practice. Our experienced team will help and guide you through every step of your case. We will fight for your justice and help you obtain maximum compensation.

Contact us today for a free consultation. We handle our cases on a contingency fee basis, which means that you only pay us if we get compensation for you. You can reach our legal team 24 hours a day by calling 1-800-247-9235 or emailing [email protected]

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