One of the most common mistakes made by employers is misclassifying employees as independent contractors. While some employers misclassify workers because they don’t understand the law, other employers intentionally do so to avoid their legal obligations to employees.
If you’ve been misclassified, you’re probably missing out on several rights and benefits that you’re entitled to as an employee. In fact, you may have a potentially large wage claim if you regularly work more than eight hours in a day or 40 hours in a week, but you aren’t paid at the proper overtime rate because your employer has labeled you as an independent contractor.
Employees are entitled to a wide variety of protections under federal and state law. Among other things, the following rules apply to employees, but not to independent contractors:
In general, an independent contractor is someone who is in business for himself or herself. Independent contractors usually perform work that requires a specialized skill or trade that is not part of a company’s regular business. They also typically perform work for multiple customers or clients, set their own fees, work from home or their own place of business, provide their own tools and equipment, and determine how and when the work is to be done. A customer or client may provide specifications or deadlines for the work, but the independent contractor decides how much time to spend and how best to do the job. For example, a web designer who works from home, performs services for multiple clients, sets his or her own hours, and gets paid on a project basis would probably be classified as an independent contractor.
An employee, on the other hand, is someone whom a company has much more control over. An employee typically performs work that is a regular part of a company’s business. Employees also usually have regularly scheduled hours, work at the employer’s place of business, receive training and direction from the company, receive an hourly wage or salary, and are subject to discipline by the company. The company has control over how the employee performs the work, often providing training, guidelines, or other supervision over the work product. For example, a marketing assistant who works from 9:00 p.m. to 5:00 p.m. during the week, at the company’s offices, receives $15 per hour, and has a supervisor who reviews his or her work, would probably be classified as an employee.
In California, there are multiple state agencies that have their own tests for determining whether someone is an independent contractor. The exact test that is used depends on which agency is interested in the classification. For example, the Employment Development Department (EDD) applies its own test if it believes your employer should have withheld payroll taxes from your wages or if it is deciding whether you’re eligible for unemployment benefits. The Division of Workers’ Compensation applies its own test when determining whether you’re entitled to workers’ comp benefits. Federal agencies, such as the IRS, also have their own independent contractor tests.
The independent contractor classification issue also comes up regularly with the California Department of Labor Standards Enforcement (DLSE), the agency responsible for enforcing wage and hour laws. When employers misclassify workers as independent contractors, they are evading their responsibilities to provide minimum wage, overtime, meal periods and rest breaks, and other similar rights guaranteed to employees.
For many years, the DLSE applied a multi-factored classification test derived from a 1989 California Supreme Court case. (S. G. Borello & Sons, Inc. v Dept. of Industrial Relations 48 Cal.3d 341 (1989).) The Borello test focused on eleven factors, the primary being whether the company has the right to control how the work is performed.
However, on April 30, 2018, the California Supreme Court rejected the Borello test in favor of a more rigid, three-prong “ABC” test. (Dynamex Operations W., Inc. v. Super. Ct., No. S222732 (Cal. Apr. 30, 2018).) Now, in order to classify a worker as an independent contractor, companies must prove that all three of the following are true:
Under the second requirement, workers who do work central to a company’s regular business operations will be considered employees. For example, cake decorators that regularly work for a bakery are likely to be employees, as are seamstresses hired by a clothing manufacturer. On the other hand, a plumber or electrician hired by a restaurant to fix a problem is not performing work in the regular course of the restaurant’s business.
The ABC test will be used by the DLSE in determining whether a worker is covered by California wage orders. However, it’s not clear whether the ABC test will apply to other wage violations under the California Labor Code, such as failure to reimburse business expenses.
If you believe you have been improperly classified as an independent contractor, you may have a wage and hour claim against your employer. For example, if you work more than eight hours in a day or 40 hours in a week, you may be owed unpaid overtime and penalties for missed meal periods and rest breaks. For more information on how to pursue a wage and hour claim, see our article, What is My Wage or Overtime Claim Worth in California?