Independent Contractor Misclassification

Just because the company who pays you for your work calls you an independent contractor does not make it so. California courts look beyond the labels or contract and assess the reality of the circumstances.

Whether a worker is classified as an employee or an independent contractor has great consequences. California law gives many benefits and protections to employees; independent contractors get virtually none. For instance, paying a worker as an independent contractor means no wage withholding, no employment taxes, no unemployment insurance, no worker’s compensation, and no liability for pensions and fringe benefits. Also, employers are not required to pay independent contractors overtime compensation, reimburse them for business-related expenses, or provide meal and rest periods.

No wonder companies sometimes attempt to skirt the obligations California law places on employers by misclassifying workers as independent contractors. But California workers are protected by tough laws that make it unlawful for any employer to willfully misclassify an individual as an independent contractor or to charge a misclassified individual a fee for any purpose, including for goods, materials, space rental, services, government licenses, repairs, equipment maintenance or fines arising from the individual’s employment. The laws encompass joint employers who knowingly acquiesce to the misclassification.

The stakes are high for employers who willfully misclassify an individual as an independent contractor: California’s Labor and Workforce Development Agency can fine an employer from $5,000 to $15,000 per violation. The penalty goes up to $25,000 per violation if the company commits a pattern and practice of willfully misclassifying workers. Also, employers may not retaliate against a misclassified worker for complaining about an incorrect classification.

The Department of Labor Standards Enforcement presumes that a worker rendering service for another is an employee, but the actual determination of whether a worker is an employee or independent contractor depends upon an economic realities test adopted by the California Supreme Court in the case of S.G. Borello & Sons, Inc. v. Dept. of Industrial Relations (1989) 48 Cal.3d 341. In applying the economic realities test, the most significant factor is whether the person to whom service is rendered has control or the right to control the work both as to the work done and the manner and means in which it is performed.

Even where there is an absence of control over work details, an employer-employee relationship will be found if the principal retains pervasive control over the operation as a whole, the worker’s duties are an integral part of the operations, and the nature of the work makes detailed control unnecessary.

The label a company applies to its relationship with a worker is not controlling. Similarly, a written agreement purporting to establish an independent contractor relationship is not determinative and the fact that a worker is issued a 1099 form rather than a W-2 form is also not determinative with respect to independent contractor status.

In one notable example, FedEx attempted to label its California drivers independent contractors. For years, FedEx shifted to its drivers the costs of FedEx branded trucks, uniforms, and scanners, as well as fuel, maintenance, insurance, and more. Drivers were not paid for missed meals, rest periods, or overtime compensation. The Ninth Circuit ruled that FedEx misclassified drivers as independent contractors. The Court said that FedEx controlled the drivers and that they were independent contractors in name only. See Alexander v. FedEx Ground Package System, Inc., 765 F.3d 981 (9th Cir. 2014).

If you are an employee based on economic realities, you are entitled to all the protections of California law, including minimum wage, overtime, reimbursement of business-related expenses and meal and rest periods. If you believe you have been misclassified as an independent contractor, we can help. Our team has successfully recovered hundreds of thousands of dollars for our clients in owed wages and penalties in numerous cases involving misclassification of workers.