As Los Angeles employment lawyers, our focus is advocating for workers whose legal rights as employees have been violated by their employer. Most people immediately think of workplace issues with discrimination, harassment, wrongful termination, etc. But it often involves classifying employees improperly – categorizing them as independent contractors as opposed to employees, in turn denying workers the employment protection and benefits that the title of “employee” confers by law.
An estimated one-third of all employers in the U.S. have misclassified at least one worker at some point.
Sometimes, this “mix-up” is willful and intentional, with the employer aware of exactly what they were doing with the specific (if not express) goal to deprive workers of the rights and compensation to which they’d otherwise be entitled. But in a lot of cases, the employer may simply not understand how the law applies.
Lack of intent on the part of the employer isn’t a full-proof defense. If an issue is discovered, employers still have a responsibility to come correct once they’re made aware. That might mean back pay, tax contributions, and liquidated damages for however long the misclassification lasted. However, those whose employee misclassification was intentional are likely to face more significant fines and other penalties from the government and courts.
While our Los Angeles employment lawyers represent the workers in these scenarios, we’ve handled enough of these cases to be able to provide employers with a few tips on making sure employees are appropriate classified in your operation. Yes, this helps mitigate the organization’s liability, but also to make sure workers are treated fairly – and that’s always been our ultimate goal.
What is an Independent Contractor, Exactly?
Workers in the U.S. can typically be classified as either employees or independent contractors. (There are also other contingent employment arrangements, such as on-call, on-retainer, or temp agency workers.)
As defined by the U.S. Bureau of Labor Statistics, an employee is someone in the service of another under any contract of hire – express or implied, oral or written – where the employer has the power or right to control and direct the employee in material details of how the work is performed. Conversely, an independent contractor is a person who, in the exercise of independent employment, contracts to do a piece of work according to his/her own methods. Independent contractors are subject to the employer’s control only as to the end product or final result of the work. They’re usually employed for a specific period of time, negotiate their own pay rates, perform assigned tasks in any manner and on any schedule they want (mindful of work product deadlines), and they can work for numerous companies – including competitors – simultaneously.
There is a lot of nuance in terms of what separates an independent contractor from an employee. Much of it comes down to how the worker is paid and the degree of control the employer has over the worker. That’s why we strongly urge employers who may be unsure to consult with an experienced employment attorney before slapping the “independent contractor” label on anyone doing work for them.
Independent contractor arrangements can be beneficial for both sides. The contractor gets greater job flexibility, tax benefits, and control over their own work. The company doesn’t have to pay for things like workers’ compensation, minimum wage, health insurance, unemployment insurance, paid sick leave, paid family leave, overtime, meal breaks, etc. Independent contractors are typically a lot cheaper than employees – which is the main reason so many employers misclassify them. However, don’t so can cost the company a pretty penny.
However, if the employer classifies the worker incorrectly, it can ultimately cost them a pretty penny.
Figuring Out if a California Worker is Misclassified
Determining whether a worker is classified appropriately as an independent contractor can be tricky (which is why we recommend consulting with a lawyer), but courts will rely on something known as the “ABC Test.” It’s a three-pronged test that assesses:
- How much control the company puts on a worker.
- Whether the work performed is outside the usual scope of the organization’s operations.
- If the worker provides this work independent of the company in question. (An independent contractor with only one “client” will get more scrutiny with regard to employment classification.)
California adopted this method in 2019, and several other states have onboarded it since. Federally, courts will look at the totality of the circumstances in considering the company’s right to control as well as the overall economic dependence of the worker on that particular organization.
Avoiding Employee Misclassification in California
Companies hoping to avoid issues with employee misclassification should consider the following:
- Be honest about the scope and nature of the person’s work. There are a lot of benefits to having independent contractors, but companies need to be very careful in evaluating whether the workers are employees or not. In cases where an argument could be made for either, classifying someone as an employee is usually a safer bet, legally speaking.
- Carefully record all terms and conditions of the arrangement. Having this clearly laid out in written form makes it easier for everyone involved to more honestly evaluate the arrangement – and make necessary adjustments if the law/regulations evolve.
- Don’t presume that having it in writing will make much of a difference. Just because a company SAYS the employee is an independent contractor doesn’t mean they are. If the worker meets the criteria for an employee, they need to be compensated as such.
Contact the employment attorneys at Nassiri Law Group, practicing in Newport Beach, Riverside and Los Angeles. Call 714-937-2020.