Employee Classification




  • What’s the difference between an independent contractor and an employee?

  • How do employers choose an employee classification?

  • What damages to employers face for misclassification?

  • How can employers protect themselves?

Wage and Hour Violations and California Employee Misclassification

California is one of the strictest states when it comes to employee classification. In fact, some workers who would prefer not to be classified as employees are now forced to be classified as employees. This is because California legislators believed that too many employers were exploiting loopholes in the law by classifying full-time employees as independent contractors. The AB5 legislation that forced many into employment contracts was an attempt to remedy that loophole. It has created problems for both employees and employers who can now be held liable under the stricter rules.

What is Employee Misclassification?

If an employer claims that a worker is an independent contractor but their role more closely resembles that of a full- or part-time employee, then the worker can file a lawsuit against the employer. The reason why employers prefer contractors to employees is that a contractor is essentially another business. An employee is a subordinate who is afforded specific rights under the law.

Differences Between Independent Contractors and Employees

Employees are entitled to:

  • Regular lunches and breaks
  • Overtime pay
  • Medical coverage
  • File discrimination lawsuits
  • Minimum wage
  • Paid sick leave
  • Unemployment insurance

Additionally, companies with employees are all considered one person under the law. Corporate personhood means that a company with an employee who injures someone else while doing their work-related duties can be held liable for the employee’s actions. This is known as vicarious liability.

 For all these reasons, many Los Angeles companies would prefer to hire independent contractors when the opportunity exists.

 Lawsuits alleging violations of the spirit of the law led to new provisions passed by the legislature which made it much more difficult for companies to classify a worker as an independent contractor. Essentially, the law made all workers employees by default forcing companies to prove that a worker was an independent contractor. Additionally, California passed rules that changed the standard test to determine if a worker is an employee or a contractor.

Employee or Independent Contractor—How to Tell the Difference

If you as a business contract an individual to do some specific work for you, the individual is automatically considered an employee unless you can prove three elements. This test is known as the ABC test. The requirements to prove a worker is an independent contractor include:

  • The worker is free from direct control of the hirer when it comes to the performance of their work
  • The worker performs work outside of the hirer’s place of business
  • The worker performs work for other companies independently that is substantially similar to the work they perform for the hirer

In the past, only the first element was required to prove a worker was an employee. These new regulations provide broader protection for workers who are exposed to creative classification schemes to skirt the spirit of the law.

Are All Laborers Subjected to the ABC Test?

No. There are several types of laborers who are still subject to the old test that only determines whether or not the employer has sufficient control over the worker. The types of laborers who are not subject to the ABC test:

  • Insurance agents or others who perform consulting work for insurance companies
  • Doctors including surgeons, physicians, dentists, and others who work at multiple hospitals or health care clinics
  • Skilled trades such as lawyers, architects, artists, musicians, writers, translators, photographers, cartoonists, copywriters, and copy editors

Essentially, professional services are exempt from the ABC rule and apply the older standard which only includes the first element of the ABC rule.

Damages in Employee Misclassification Lawsuits

Employees who are found to have been intentionally misclassified by their employer to deny them benefits that they would otherwise be entitled to under California law can sue for money damages to recover money for verifiable injuries. These include:

  • Wages lost due to misclassification
  • Benefits lost due to misclassification
  • Civil penalties against the employer
  • Attorneys’ fees for filing the lawsuit

Injunctive Relief for Misclassified Employees

The court may provide injunctive relief to employees during ongoing misclassification disputes. In other words, the court can force the company to treat the workers as employees until the situation is resolved.

Why Employers Need to be Careful

Employee misclassification lawsuits cost businesses billions of dollars each year. These are companies that were attempting to lawfully save money on expenses related to labor. In an effort to cut these costs, they find themselves instead paying out large sums of money to employees, their attorneys, and their families for denying them their rightful wages. This is completely avoidable.

An employment attorney at The Wright Firm can go over all of your hires to determine if you are in substantial compliance with California law. While the spirit of the law is to protect employees from exploitative business arrangements, not all independent contractors consider their work exploitative. It is more often than not that underskilled workers face misclassification rather than skilled workers.

If, for example, your office hires a janitor to clean up after you leave, you may have been surprised by the fact that the new law requires you to pay this person overtime, afford them vacation time, cover their health care, and more. But if you are their only “client,” then they become your new employee.

Hire a Skilled California Employment Lawyer Today

If your company is facing allegations that they have intentionally misclassified employees, please know that this situation was avoidable from the beginning. The Wright Law Firm Employment Lawyers has helped several Los Angeles companies avoid lawsuits of this nature, and we can help your company avoid these lawsuits while legally reducing costs related to your payroll. Call today to discuss your situation with an experienced labor attorney today.


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