What is Independent Contractor Misclassification?

Independent contractor misclassification is a rampant problem that denies workers their rights.  Contractor misclassification occurs when an employer hires a worker and treats them as an independent contractor even though the law says the worker is actually an employee.
Almost 10% of all workers in the United States are misclassified as independent contractors. Nearly one out of every five employers misclassify employees as contractors.

Independent Contractor vs. Employee

Independent contractors are generally individuals who have their own business and work with more than one customer or “employer.”  California has a very specific definition who is a contractor and who is an employee.  In fact, there are two tests in California to determine whether you are a contractor or an employee.  The first test, which is the default test and applies to almost all California workers, is commonly referred to as the ABC test.

The ABC Test for Independent Contractor Misclassification

Under the ABC test, a worker who has been classified as an independent contractor and paid by 1099 is actually an employee if any of the following are false:
  1. The worker is free form the control and direction of the hiring entity in connection with the performance of the work (both according to the contract and in the actual performance of the work being done)
  2. The worker performs work that is outside the usual course of the hiring entity’s business. (For example, a painter who paints a Dentist’s office.  On the other hand, a programmer that works for a software company likely does not satisfy this requirement.)
  3. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.  (The painter has his own painting business.  However, a freelance painter is less likely to meet this requirement.)
If even one of these is false about your work situation, you are not an independent contractor, you are an employee.

The Borello Test for Independent Contractor Misclassification

If you are in one of the few jobs that is specifically named in the independent contractor law, whether or not you are an independent contractor is determined by what is commonly referred to as the Borello test.
The Borello test determines whether or not you are an independent contractor or employee if you work in one of these jobs:
  • Doctors, surgeons, dentists, podiatrists, psychologists, veterinarians
  • Insurance brokers
  • Lawyers and attorneys
  • Architects and engineers
  • Private investigators
  • Accountants
  • Registered securities broker-dealers and investment advisers
  • Direct sales salespeople who sell
If you work in one of these professions, then whether or not you are an independent contractor will depend on the following questions:
  • Whether the type of work you do is different than the type of work the business hiring you performs.
  • Whether the business that has hired you provides the tools and equipment or whether you are expected to provide your own. (This usually only matters with respect to very expensive tools, not computers, hammers, etc.)
  • How much of financial investment you’ve made into your tools and equipment. (The more expensive/greater investment, the more likely you are to be an independent contractor.)
  • The skill required for your particular job.
  • The opportunity you have to profit or lose money on a job based on your own managerial skill. (If you are paid by the job, as opposed to hourly or salary, you’re more likely to be an independent contractor.)
  • How long the service you are providing is expected to last. (The more indefinite the service period, the more likely you are an employee.)
  • The payment method, whether by the hour/salary or by the completion of a job. (Workers paid by hour/salary are more likely to be employees.)
It is a little more difficult to determine whether you have been misclassified as an independent contractor under the Borello test. You might be on both sides of the spectrum depending on the question. And being closer to the “independent contractor” classification in one question does not automatically make you an independent contractor. For many employees, their answer to one or more questions “lean” towards contractor even though they are legally employees.

Commonly Misclassified Workers

As many independent contractor misclassification lawyers will tell you, there are many misclassified workers.  Some professions where misclassification are common are:
  • IT workers
  • Salespersons
  • Healthcare workers
  • Customer service workers
  • Construction workers
  • Tipped employees
  • Gig workers

Why Do Employers Misclassify Employees as Independent Contractors?

Employers generally misclassify employees as independent contractors for two reasons:
  1. They are unfamiliar with the law, or
  2. They want to avoid providing their workers with the benefits and protections of the California Labor Code.
Some employers are unfamiliar with the law, and to keep things simple, they prefer to treat some or all of their workers as independent contractors. They do not have to deal with complicated payroll and withholdings issues, they simply pay the independent contractor at the end of the week or month.
Most employers characterize workers as independent contractors to avoid the added expense of having employees.  When an employer hires an employee (as opposed to an independent contractor) the employer has to pay for:
  • Worker’s compensation insurance (for workers injured on the job)
  • Unemployment insurance (for workers who are terminated)
  • Employment taxes (usually around 7.5% of your hourly rate/salary)

In addition, employees are entitled to other rights under the California Labor Code, Fair Employment and Housing Act, and California and Family Medical Rights Act, just to name a few. These employee rights require employers to:

  • Pay workers the state or local minimum wage
  • Meal breaks and rest break rights
  • Pay workers overtime
  • Provide workers paid sick leave
  • Reimburse workers for expenses incurred while on the job (phone use, mileage reimbursement, uniforms, etc.)
  • Not discriminate based on race, ethnicity, age, military status or gender
  • Provide protected leave for maternity leave and paternity leave
  • Provide protected leave for serious illness
  • Provide reasonable accommodations to workers who have disabilities
As you can see, it is easier and less expensive to misclassify an actual employee as independent contractor. Employers can save thousands or tens of thousands of dollars each year by misclassifying even a single worker as an independent contractor. But just because your employer labels you an independent contractor or pays you with a 1099 does not mean you are in fact an independent contractor.

How Much Money Can You Recover If You Have Been Misclassified As An Independent Contractor?

Employees classified as independent contractors can recover tens of thousands or hundreds of thousands of dollars in stolen wages, reimbursements, penalties and interest.  These numbers may seem high, but because California is so protective of its workers, the consequences for employers that misclassify their employees can be steep.
An independent contractor misclassification attorney can recover:
  • Unpaid local or state minimum wages (typically when an independent contractor is paid by salary)
  • Unpaid overtime wages (for salaried independent contractors or those paid by straight time for all hours worked)
  • Reimbursement for work expenses (phone, uniform, mileage reimbursement, and other expenses)
  • Reimbursement for the 7.5% employer portion of FICA taxes that you have to pay because you receive a 1099
  • Penalties for failing to pay you any owed wages (overtime) when the job is over
  • Penalties for failing to provide you with a compliant paystub
  • Penalties for failing to notify you of your paid sick leave rights
Additionally, if you have been wrongfully terminated, retaliated against or discriminated against, you might be entitled to money for:
  • Lost back pay
  • Emotional distress
  • Punitive damages
In these types of cases, an employee may be entitled to hundreds of thousands or millions of dollars in damages.

Talk to an Experienced California Employment Law Attorney.

Not all attorneys are created equal. Do you want someone that aggressively fights for you, that chases every last nickel your employer stole from you and does not give discounts? To have the best opportunity for success, you should hire an independent contractor misclassification attorney.
These cases require experience and skill. Going up against your employer can feel daunting, but not if you have the help of a knowledgeable attorney by your side. Let us help. Our attorneys are experienced in handling independent contractor misclassification cases.  Drew Lewis, PC, led by its lead trial attorney Drew Lewis, has years of experience representing employees who have been misclassified as contractors.
Drew has recovered millions of dollars for his clients. He understands how employers try to hide the facts and how to prove contractor classification cases.  And he does not give discounts to employers who have stolen from their workers.
We offer a free case evaluation. And you do not pay us unless we win your case.

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