California Misclassification Lawsuit Settles for $16 Million

A California misclassification lawsuit was recently settled for nearly $16 million. The case involved hundreds of franchisees for an Ohio-based tool company, which was accused of wrongly classifying employee distributors as independent contractors. The business model include selling the company’s tools at wholesale costs ,to be sold to consumers at retail prices. California employee misclassification lawyer

The class action litigation accused the employer of signing franchise agreements in California mobile stores. By wrongly classifying these entities as contractors, the employees were denied proper reimbursement for business expenses, paid overtime, meal and rest breaks, and accurate wage statements. The California labor lawsuit was filed last year, with the primary plaintiff alleging he worked approximately 20 hours of overtime weekly. The franchise agreement also reportedly required distributors to pay the tool company an initial fee, distribute only approved tools from the company’s brand using its own system, attend distributor training programs (while paying their own costs associated with this training), lease/purchase a branded truck from the company, wear the tool company’s branded uniforms, and operate their branded truck only within a company-identified territory.

Despite holding this tight control over the workers, the company insisted they were independent contractors. The U.S. District Court for the Northern District of California disagreed, recently approving a settlement in Fleming v. Matco Tools Corp. that grants each class member $35,000 in cash. Those eligible for debt relief may be entitled to approximately $42,000 each.

Employee v. Independent Contractor: What is the Difference in California?

There are many reasons why a company would have motivation to label a worker as an independent contractor versus an employee – most of them financial. While workers are entitled to minimum wages, overtime pay protections, travel reimbursement costs, and breaks, independent contractors are pretty much left to cover these things on their own. Companies don’t have to pay workers’ compensation insurance or unemployment insurance for independent contractors – but they do for employees.

Employees receive critical protections and benefits – which is why misclassification is such a big problem. California law skews heavily in favor of the presumption of an employee-employer relationship.

Generally speaking, the it comes down to the level of control an entity has over a worker and the means by which they’re paid. If a company directly pays a worker and has substantial control over when and how the work is done, it’s likely the worker is an employee rather than an independent contractor.

California labor law presumes workers to be employees UNLESS the following three conditions are all met:

  • The worker is free from the control/direction of the hiring entity in connection with performance of the work, both under the contract for the performance of the work and in fact.
  • The worker performs duties that are outside the usual course of the hiring entity’s business.
  • The worker customarily engages in an independent, established trade, business, or occupation of the same nature that is involved in the work performed.

Per the U.S. Fair Labor Standards Act, companies are not allowed to misclassify employees for any reason – even if the worker agrees. One is not an independent contractor just because they work offsite (at home) or have flexible hours. Signing an independent contractor agreement or a 1099 doesn’t automatically make you an independent contractor. Even having your own EIN (employee identification number) and paperwork stating you are an LLC doesn’t make you an independent contractor. It doesn’t matter whether you’re paid in cash, check or off the books. And “common industry practice” is not an excuse to misclassify workers.

Red flags that you may be misclassified as an independent contractor when you’re really an employee include:

The employer sets the location, work hours, and means of doing assigned tasks. (Most independent contractors can decide how, when – or if – to do the work. If someone else sets your schedule and rules for how to do your job, you may be an employee.)

If you believe you may have been wrongly misclassified as an independent contractor in California, our Los Angeles employee misclassification lawyers can help.

Contact the employment attorneys at Nassiri Law Group, practicing in Newport Beach, Riverside and Los Angeles. Call 714-937-2020.

Additional Resources:

GET THE FACTS ON UNDER THE FAIR LABOR STANDARDS ACT, Wage and Hour Division, U.S. Department of Labor

More Blog Entries:

Pay Secrecy in California: Understanding Your Employee Rights, June 17, 2020, Los Angeles Misclassification Lawyer Blog

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