By: Nicholas J. Ferraro | July 13, 2021 | Employment Law
Being misclassified as an independent contractor can deny you the benefits and rights of an employee in California. For example, you may not be protected for work-related injuries, and you could pay higher taxes as a self-employed individual. In addition, as an independent contractor, you would not be entitled to unemployment benefits if you are fired or laid off.
State and federal laws give you the right to sue your employer for employee misclassification. You could be entitled to compensation for damages caused by your misclassification as an independent contractor.
What is an Independent Contractor?
An independent contractor is not an employee; the person is self-employed. A company and an independent contractor enter an agreement for the independent contractor to provide services to the company.
Unlike employees, independent contractors may have several clients that they work for simultaneously. The independent contractor generally decides how a job or project is completed.
The independent contractor makes all decisions regarding the performance of the work as long as the work is completed within the scope and timeframe of the contract or agreement.
California courts have ruled that the ABC Test should be used to determine whether a person is an employee or an independent contractor.
Under the ABC Test, a person is an independent contractor if:
- The person is not subject to the direction and control of the hirer regarding how the work is performed;
- The person performs work that is outside of the ordinary scope of the hirer’s business; and,
- The person is engaged in an independently established business, trade, or occupation of the same nature as the work performed for the hirer.
If the above terms are not applicable, the person is an employee unless they fall within specific exemptions. Generally, if a hirer can fire you at will, tell you when to be at work, and tell you how to perform the job, you are an employee instead of an independent contractor.
Why is it Important to Be Classified as an Employee?
Unless you own your own business and wish to be an independent contractor, you want to be classified as an employee. Employees receive many benefits that independent contractors do not receive.
If an employer misclassifies you as an independent contractor, you are not entitled to:
- Health insurance benefits from the employer
- Workers’ compensation benefits for on-the-job injuries and illnesses
- Overtime pay, paid breaks, vacation time, and other wage and hour protections
- Employer-provided retirement benefits
- Unemployment benefits
- Medical and family leave
- Medicare and Social Security taxes paid by the employer
- More robust protection against workplace harassment, discrimination, wrongful termination, and employer misconduct
Employers often misclassify employees as independent contractors to avoid paying payroll taxes and health insurance benefits. The employer purposefully misclassified the employee to reduce overhead costs and avoid liability for certain benefits.
Suing a California Employer for Misclassification
Under California Labor Code §226.8, it is illegal to willfully or intentionally misclassify a person as an independent contractor. Therefore, if your employer intentionally misclassified you as an independent contractor, you could be entitled to compensation.
By filing a wage and hour lawsuit, you could recover damages for:
- Unpaid wages and salaries
- Unpaid overtime
- Unpaid meal and rest breaks
- Interest and penalties
- Liquidated damages equal to twice your unpaid wages plus interest if the misclassification was intentional
The employer may also be fined for their wrongdoing. An employer could face a fine of $5,000 to $25,000 for each violation. Willful misclassification is defined as knowingly and voluntarily misclassifying an employee as an independent contractor.
Filing a PAGA Claim for Employee Misclassification
You may also have the right to file a PAGA claim in addition to the wage and hour lawsuit. A claim under the California Private Attorney General Act gives employees the right to sue their employers for violations of the California labor code.
If you are successful, you keep 25 percent of the penalties the employer is ordered to pay for violating labor laws. The remaining funds are paid to the state. This compensation is in addition to any award you might receive for a wage and hour lawsuit.
Filing a Federal Lawsuit Against Your Employer
Some employees decide to file a lawsuit for employee misclassification under the federal Fair Labor Standards Act. One of the advantages of filing under federal law is that you could receive double your unpaid wages plus interest if you are successful.
However, federal law does not have a standard test to determine whether you are an independent contractor or an employee. Many factors are used to determine your status as an employee, making it more challenging to prove your case.
Before filing a claim for misclassification as an independent contractor, you should weigh all your options. However, do not wait too long to act because there are deadlines for filing wage and hour claims, including employee misclassification claims. Call our employment lawyers today to know more.
To learn more, call our San Diego law firm at (619) 693-7727 or contact us online.
