Employers frequently misclassify workers who legally qualify as employees as “independent contractors.” The distinction between employee and independent contractor is critical because improper classification can result in an employee losing important worker protections and tens of thousands of dollars in wages and benefits.
Losses suffered by improperly classified employees often include:
- Overtime Pay,
- Minimum Wage Pay,
- Meal and Rest Breaks,
- Worker’s Compensation Insurance,
- Unemployment Insurance,
- Reimbursement of Work-Related Expenses, Including Vehicle, Cellular Telephone and Home Internet Expenses,
- Sick Leave, and
- Legal Protection from Discrimination, Retaliation and Harassment.
If you suspect that your employer has misclassified you as an independent contractor, California employment law may provide you the ammunition you need to fight pack. Lawsuits by improperly classified employees can recover tens of thousands of dollars in lost wages, penalties, and attorney’s fees.
Misclassification is often no accident. Employers who misclassify employees as independent contractors effectively transfer the costs of running their business to the employee. By not paying overtime wages, expense reimbursements, meal and rest period premiums and other benefits, employers increase profits, potentially saving millions of dollars in employee costs per year.
How Does California Law Determine Whether a Worker Is an Independent Contractor or Employee?
Whether you are an employee or an independent contractor is a legal question that can only be answered by examining the nature and circumstances of your work. Many people do work legitimately as independent contractors in California. True independent contractors have the freedom to choose the customers they serve, set their own hours, and generally control how, when and where their work is performed.
Even if an employer issues you a 1099, has you sign an “independent contractor agreement” and calls you an “independent contractor,” you may still be an employee – labels are not determinative.
Lawsuits by employees misclassified as independent contractors have increased in recent years because of the passage of AB5, a law that took effect in California on January 1, 2020. The effect of AB5 is to make it easier for most categories of workers to establish “employee” status in court and thus recover lost benefits and damages.
How Do I Know Whether I Have Been Misclassified as an Independent Contractor?
Under AB5, California adopted a three-part test, called the “ABC Test” to determine whether a worker is an employee or independent contractor. The ABC Test effectively makes it more difficult for employers to classify workers as independent contractors. Under the ABC Test, the worker is an employee unless the employer can prove all three elements of the test:
- The worker is free from the control and direction of the company in connection with the performance of work,
- The worker performs work outside the ordinary course of the business, and
- The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
If the employer cannot prove all three requirements of the ABC Test, the worker is deemed to be an employee for purposes of California law.
That said, AB5 lists various categories of workers for whom the ABC Test does not apply. These workers include:
- Insurance agents, inspectors, surplus line brokers, and life and disability insurance analysts;
- Physicians, surgeons, dentists, podiatrists, psychologists, and veterinarian’s licensed by the State of California;
- Licensed lawyers, architects, engineers, private investigators, or accountants;
- Securities broker-dealers or investment advisors or their agents and representatives who are registered with the SEC or FINRA, or licensed with the State of California;
- Real estate appraisers;
- Home inspectors;
- Direct sales salespersons;
- Commercial fishermen working on American vessels (only from January 1, 2020 to January 1, 2023);
- Fine artists;
- Freelance writers;
- Still photographers;
- Freelance editors;
- Newspaper cartoonists;
- Copy editors;
- Data aggregators;
- Competition judges;
- Individuals engaged in international exchange visitor programs;
- Musicians with single-engagement live performances;
- Recording artists, songwriters, lyricists, composers, and proofers;
- Recording artist managers;
- Record producers and directors;
- Musical engineers, mixers, and musicians creating sound recordings;
- Independent radio performers;
- Graphic design;
- Grant writers;
- Manufactured housing salespersons;
- Youth sports coaches;
- Landscape architects; and,
- Professional foresters.
Even if you fall within a category of worker excluded from the ABC Test, you may still be an employee – it’s just that the ABC Test does not apply to you. Instead, your employee / independent contractor status is determined under the “Borello Test,” which gets its name from the California Supreme Court decision that introduced it, Borello & Sons, Inc. v. Dept. of Indus. Rel. (1989) 48 Cal.3d 354.
The Borello Test looks at various factors concerning the worker’s employment, including:
- Whether the work is a regular or integral part of the employer’s business,
- Whether the worker performing services holds themselves out as being engaged in an occupation or business distinct from that of the employer,
- Whether the employer or the worker supplies the instrumentalities, tools, and the place for the worker doing the work,
- Whether the work requires special skill,
- Whether the worker has invested in the business, such as in the equipment or materials required by their task,
- The kind of occupation, and whether the work is usually done under the direction of the employer or by a specialist without supervision,
- The worker’s opportunity for profit or loss depending on their managerial skill,
- The degree of permanence of the working relationship,
- The length of time for which the services are to be performed,
- Whether the worker hires their own employees,
- The method of payment, whether by time or by the job,
- Whether or not the worker and the potential employer believe they are creating an employer-employee relationship (this may be relevant, but is not determinative), and
- Whether the employer has a right to fire at will or whether a termination gives rise to an action for breach of contract,
When the Borello Test applies, California courts look to these factors and the degree of control exercised by the employer over the worker. The higher the degree of control, the more likely the worker will be determined to be an employee.
What Can I Recover if I Have Been Misclassified as an Independent Contractor?
If you have been misclassified as an independent contractor, California law provides you powerful tools to fight back. Employment laws allow you to file a lawsuit against your employer to recover the following:
- Unpaid overtime and minimum wages,
- Premiums for missed meal and rest breaks,
- Reimbursement for work-related expenses (i.e., vehicle, cell phone, home office costs),
- Unpaid unemployment insurance premiums,
- Liquidated damages and other penalties,
- Attorney fees; and
California law also permits employees to recover civil penalties (like a fine) from employers who misclassify employees as independent contractors. California Labor Code Section 226.8 provides for civil penalties ranging from $5,000 to $15,000 per violation. Penalties increase to $10,000 to $25,000 if the misclassification is willful or part of a pattern or practice. The Orange County based Law Offices of Corbett H. Williams is an elite law firm that represents employees in discrimination, harassment, retaliation, wrongful termination, wage & hour, and other employment matters. Strict time limits may apply to your claim, so you shouldn’t wait. Contact us today at 949-528-4220 or use the contact form at the top of this page, and we will respond promptly.