Damages for Misclassification of Employees
WHY IS MISCLASSIFICATION A PROBLEM?
Employers frequently misclassify employees as independent contractors in an attempt to minimize the costs of employing individuals. This classification saves the employer money because, by way of examples, the employer need not pay employment tax (Social Security, Medicare, etc.) for individuals categorized as independent contractors. Additionally, employers need not carry some forms of insurance for independent contractors such as workers’ compensation. Consequently, it is nearly always less expensive for an employer to classify a person working for it as an independent contractor.
On the flip side, it is nearly always a detriment to the worker to be classified as an independent contractor. By way of example: (1) The worker must pay the one-half of the employment tax the employer would otherwise have paid. (2) The worker is denied many legal protections such as many of California’s wage and hour laws and worker protections — for example, the right to receive overtime compensation or to take medical or pregnancy leave. (3) The worker may not be eligible for unemployment insurance when he or she otherwise may have been eligible.
WHAT IS THE LEGAL TEST FOR EMPLOYEE STATUS?
Luckily for workers, the label the employer and the worker put on the relationship is not determinative and it will be ignored by courts if they determine the relationship was employment rather than independent contractor relationship. In fact, Labor Code Section 2750.5 states the starting point for a misclassification analysis begins with a rebuttable presumption the worker is an employee and not an independent contractor. In other words, the employer has the burden of proving a worker is properly categorized as an independent contractor. Thereafter, the analysis involves a comprehensive totality of the circumstances analysis of whether the person was an employee or a contractor. The focus of the analysis is about control, and whether the worker was subject to the control of the employer as to the manner and means of the work. Courts will also consider a variety of factors, including:
- Whether the contractor was engaged in the same line of work of the employer
- Whether the contractor performed work without supervision
- Whether the worker possessed a special skill
- Whether the contractor provided his or her own tools (including computers, software, email accounts, etc.)
- Whether the position was permanent or for a short period of time
- Whether the worker was paid a salary or an hourly wage
- Whether the worker was treated as an employee or a contractor
ASSERTING YOUR RIGHTS UNDER WAGE AND HOUR LAW
The analysis can be a lengthy one, but for individuals who believe they may have been misclassified as an independent contractor, it can be well worth investigating. Employers that misclassify employees as independent contractors intentionally (or recklessly) are liable for substantial penalties under tax law, as well as substantial civil penalties (up to $10,000 per employee). Additionally, a worker who was misclassified as an independent contractor can sue to recover all of the overtime wages they should have been paid for hours worked in excess of eight in a day, or 40 in a week (for an example of this type of calculation, see the ” Misclassification As Exempt” page).
Workers who are misclassified as independent contractors have all the same rights and remedies as employees. If the employee was discriminated against or retaliated against or was denied disability or pregnancy accommodations, then that employee can sue to recover damages, including lost past and future wages, past and future emotional distress, punitive damages, as well as recover attorney’s fees and costs in many circumstances.
Le Clerc & Le Clerc LLP has extensive experience in representing workers who have been misclassified as independent contractors. Contact us if you would like a free consultation.