In the United States, independent contractor misclassification is an issue affecting workers’ rights. Independent contractor misclassification happens when an employer treats an employee like an independent contractor rather than the employee that legally they are.
Employers misclassfiy employees as independent contractor for many reasons; the commons reasons employer misclassify employees are independent contract includes:
- depriving employees from overtime pay wage
- depriving employees from rest break and lunch break
- depriving employees from a wage statement and receiving timely paycheck.
Believe it or not, this is a fairly common problem. Nearly 10% of American workers are misclassified as contractors when they are actually legal employees. Almost 20% of employers, knowingly or not, misclassify their employees as contractors.
So, what is the difference between independent contractors and employees?
Typically, independent contractors are people who have their own business and work with clients or customers. In this case, clients or customers qualify as “employers” of the contractor, because they are hiring the contractor for services. The state of California is very specific when it comes to defining the difference between contractors and employees. The state provides two tests that can be used to identify a person as an employee or a contractor. The first of these tests is commonly known as the ABC test, and it is relevant to nearly all California workers.
How do I know if I’ve been misclassified as an independent contractor?
There are two types of test to determine if an employee has been misclassified as an independent contractor: 1) ABC Test, and 2) Borello Test. If you need to determine if a worker is an independent contractor or employee, please contact our San Diego employment attorney.
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ABC Test for Independent Contract
According to the ABC test, an independent contractor (paid via 1099) is actually an employee if any of the following is FALSE:
- The worker’s performance is not being controlled or directed by the hiring entity
- The worker does work that is not performed by the hiring entity’s business
- Example: a carpenter makes custom shelves for an office
- The worker conducts an independent trade of the same nature as the work he or she performs for a business
- Example: the carpenter mentioned above has his own carpentry business
If any of the above scenarios is false, an independent contractor is in fact not a contractor, but an employee.
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The Borello Test for Independent Contract
The second test that the state of California recognizes is known as the Borello test. It applies to workers in a specific few industries, including the following:
- Surgeons, doctors, dentists, veterinarians, psychologists
- Lawyers and attorneys
- Insurance brokers
- Engineers and architects
- Private investigators (PIs)
- Accountants
- Salespeople
- Brokers and investment advisers
For someone working in one of the above professions, whether he or she is an independent contractor may be determined by the following questions:
- Is the kind of work different than the work the hiring business does?
- Does the hiring business provide necessary tools and equipment, or is the worker expected to provide them?
- What has the worker invested financially into tools and equipment?
- The greater the amount, the more likely it is that the worker is an independent contractor
- Does the job require specialized skill?
- Is profit contingent on the worker’s personal managerial skill?
- A true independent contractor is paid by the job, versus by the hour or year
- How long is the period of service?
- A worker with an indefinite service period is more likely an employee
- What is the payment method?
- Workers are more likely to be employees if they are paid by the hour/year
The Borello test is not fool proof. It can be difficult to determine whether one is an independent contractor or an employee, because a worker might fall on both sides of the spectrum. For one question, a worker might clearly fall under the definition of a contractor, while for the next, he or she might fall under the definition of an employee. Sometimes, a person whose answers lean more towards an independent contractor are actually an employee by law.
Why would an employer misclassify employees as independent contractors?
There are two main reasons why employers misclassify employees as independent contractors:
- Ignorance – they are simply unfamiliar with the law
OR
- Intent – they don’t want to give their workers the benefits and protections that employees receive under the California Labor Code
For the employers unfamiliar with the law, it may be tempting to keep things simple. By treating their workers as independent contractors, they don’t have to bother with payroll and withholdings issues, and they can simply pay the independent contractor at the end of every week or month.
That said, most employers pretend employees are independent contractors because having employees is expensive. Having an employee comes with the following expenses:
- Worker’s compensation insurance, meant for workplace injuries
- Unemployment insurance, meant for employees who are let go
- Employment taxes, which clock in at about 7.5% of an employee’s rate/salary
Employees in California are also protected under the California Labor Code, the Fair Employment and Housing Act, and California and Family Medical Rights Act, among others. These acts, which list employee rights, require employers to do the following:
- Pay their employees the state or local minimum wage
- Provide meal and rest breaks
- Pay overtime
- Provide paid sick leave
- Not discriminate based on background, age, gender, etc.
- Reimburse employees for on-the-job expenses
- Provide maternity and paternity leave
- Provide leave for medical issues
- Provide disability accommodations
By misclassifying employees as independent contractors, employers can save thousands of dollars every year.
What are the penalties for misclassification?
When an individual is misclassified as an independent contractor instead of an employee, they may be entitled to various damages and remedies under California labor laws. The damages that an individual can receive for misclassification can include both monetary compensation and other remedies. Specific damages can vary depending on the circumstances of the case and the extent of the misclassification. The following are some potential damages an individual can receive for misclassification:
- Unpaid Wages and Overtime: Misclassified individuals may be entitled to receive unpaid wages for work they performed but were not compensated for properly. This can include unpaid minimum wages, overtime, and other compensation that should have been provided to employees.
- Back Pay and Benefits: In addition to unpaid wages, misclassified individuals may be entitled to back pay for missed benefits, such as paid time off, sick leave, and other employee benefits they were denied due to their misclassification.
- Liquidated Damages: Under certain circumstances, misclassified workers may be entitled to liquidated damages, which are additional monetary damages equal to the amount of unpaid wages. These damages are meant to compensate the individual for the harm caused by the misclassification.
- Interest: Unpaid wages and damages awarded for misclassification may also be subject to interest, which compensates the individual for the delay in receiving their rightful compensation.
- Attorney’s Fees and Costs: In some cases, misclassified individuals who prevail in legal actions against their employers may be entitled to have their attorney’s fees and legal costs covered by the employer. This encourages workers to seek legal remedies for misclassification.
- Punitive Damages: In cases of willful or intentional misclassification, punitive damages may be awarded to punish the employer for their wrongdoing. However, punitive damages are generally awarded in cases of extreme misconduct.
- Equitable Relief: Misclassified individuals may seek equitable remedies such as injunctive relief, which could include court orders to reclassify the individual as an employee, provide proper benefits, or cease misclassification practices.
- Emotional Distress Damages: In some cases, misclassified individuals may seek damages for emotional distress caused by the misclassification and its effects on their livelihood.
You should consult with an employment lawyer who specializes in labor law in California to understand the specific damages that may apply in your situation. The remedies and damages available can vary based on the details of the case, applicable laws, and court decisions. If you believe you have been misclassified, seeking legal advice is crucial to determine your rights and potential remedies.
How can an employment lawyer help if you were misclassified?
If you believe you have been misclassified as an independent contractor when you should be classified as an employee in California, an employment lawyer can be a valuable resource in helping you navigate the legal complexities and seeking the appropriate remedies. Here is how an employment lawyer can assist you in a misclassification case:
- Legal Assessment: An employment lawyer will review the details of your employment situation, including your job duties, work arrangement, and contractual terms, to determine whether there are grounds for claiming misclassification.
- Legal Advice: They will provide you with informed advice about your rights under California labor laws and the potential legal actions you can take to address the misclassification.
- Filing a Claim: If misclassification has occurred, an employment lawyer can help you file a claim or lawsuit against your employer. This may involve filing a complaint with the relevant government agencies or pursuing legal action in court.
- ABC Test Evaluation: Given California’s use of the ABC test to determine worker classification, an employment lawyer can help assess whether you meet the criteria for employee status under this test.
- Evidence Collection: An employment lawyer can assist in collecting and preserving evidence that supports your claim, including documents related to your work, contracts, communications, and payment records.
- Negotiations: In some cases, employers may be open to negotiating a settlement to resolve misclassification claims. An employment lawyer can represent your interests during negotiations and help you secure a fair settlement.
- Litigation: If a settlement cannot be reached, an employment lawyer can represent you in litigation, presenting your case in court and advocating for your rights.
- Damages and Remedies: An employment lawyer can help you identify the damages you may be entitled to, such as back wages, benefits, liquidated damages, interest, attorney’s fees, and potential emotional distress damages.
- Exemptions and Lawsuit Strategy: Depending on your specific situation, an employment lawyer can assess whether any exemptions apply to your case and develop a strategic approach to maximize your chances of success.
- Legal Compliance: Employment lawyers are knowledgeable about the evolving labor laws in California. They can ensure that your case is in compliance with legal requirements and regulations.
- Advocacy and Support: An employment lawyer serves as your advocate throughout the process, providing legal guidance, addressing your concerns, and fighting for your rights.
Remember that labor laws and regulations can change, and misclassification cases can be complex. An employment lawyer with expertise in California labor law can provide tailored guidance based on the most current legal information and precedents. If you believe you have been misclassified, consulting with an employment lawyer is crucial to understand your options and pursue appropriate remedies.
