Independent Contractor vs. Employee
WHAT IS THE LAW REGARDING INDEPENDENT CONTRACTORS?
California presumes that all workers who perform services are employees. Despite this presumption, many employers misclassify individuals who work for them as independent contractors. Rather than put the employee on payroll and issue the employee an IRS Form W-2, the employer provides the worker with a IRS Form 1099. Under California Labor Code section 226.8(a)(1), it is unlawful for any person or employer to willfully misclassify an individual as an independent contractor.
Even if the individual signs a written independent contractor agreement, the court may still hold that the person was misclassified. What’s more, even if the individual was obtained from a staffing agency, the individual may still be misclassified as an independent contractor. In cases where the employer obtained the individual from a staffing agency, the individual can bring an action against both the employer and the staffing agency under joint employer liability.
WHY EMPLOYERS CLASSIFY INDIVIDUALS AS INDEPENDENT CONTRACTORS?
Unless, the individual is a bona fide independent contractor, such as a person who paints your home, the reasons employers misclassify their employees as independent contractors is to forgo paying lawful and appropriate wages and to avoid paying payroll taxes, social security, medicare, or state disability. Another problem with misclassifying an employee as an independent contractor is that if and when the employee seeks unemployment insurance benefits, the employee may not be entitled to unemployment payments since no money was contributed.
HOW TO PROVE THAT YOU ARE AN EMPLOYEE [ABC FACTORS]
Recently, the California Supreme Court issued a landmark decision in Dynamex Operations West v. Superior Court, 2018 Cal. LEXIS 3152 (Cal. 2018), in which the Court replaced the nearly 30-year old Borello control test for determining whether a worker is an employee or an independent contractor.
In replacing the decades-old Borello control test, which applied multiple factors to the determination of whether a worker qualifies as an independent contractor, the Court adopted the simplified “ABC” Test. To meet its burden under the ABC Test, a business must establish each of three ABC factors:
- In order to answer this, the Courts will look to see whether the employer has the right to control the worker and does in fact control the worker in terms of scheduling the workers hours, supervision and a worker’s ability to decline assignments or work.
- In order to answer this, the Courts will look at the workers own business incorporation.
- If the worker has his or her own license.
- If the worker provides his or her own advertisement versus if the worker offers to provide his or her services to the general public.
- The Court will also look to see whether the worker actually in fact provided his or her services to people other than the employer.
DLSE Opinion. Letter No.
Application of the ABC Test to Claims Arising Under Wage Orders
Independent contractor vs. employee: Assistant golf professional
Independent contractors vs. employee, registered nurses with a nursing registry
Independent contractors: “Promotional extras”
WHAT ARE THE DAMAGES IF AN EMPLOYEE IS MISCLASSFIED AS AN INDEPENDENT CONTRACTOR?
If an employer misclassifies an employee as an independent contractor, the law provides for the following damages:
- The employee is entitled to the unpaid wages he or she is owed.
- The employer is subject to a civil penalty of not less than five thousand dollars ($5,000) and not more than fifteen thousand dollars ($15,000) for each willful misclassification.
- The employer is subject to a civil penalty of not less than ten thousand dollars ($10,000) and not more than twenty five thousand dollars ($25,000) for each violation if the employer has engaged in or is engaging in a pattern or practice of willfully misclassifying individuals as independent contractors.
- The employer must post a notice of its violation for one year.
- The employer must pay the employee’s personal income tax.
- The employer must make unemployment insurance contributions.
- The employer must pay state disability insurance and paid family leave.
There has been an increasing trend among employers to hire individuals as independent contractors as opposed to employees. Doing so provides numerous benefits to the employer, while simultaneously depriving the misclassified workers of vital employment benefits. Independent Contractors are not entitled to receive the benefits that employee status typically offers, including:
- Company Sponsored Life Insurance
- Family Leave
- Health Insurance
- Meal & Rest Breaks
- Medical Leave
- Paid Sick Leave
- Paid Vacation Time
- Participation in a Company Sponsored Retirement Plan
- Pregnancy Leave
- Wage Protection
If you were hired as an Independent Contractor but you should be classified as an employee, you may be the victim of Independent Contractor Misclassification. Please contact us the Law Firm of Los Angeles Employment Attorney Morris Nazarian by calling (310) 284-7333 to schedule a free, confidential consultation. Mr. Nazarian will meet with you to review your job duties, how you receive your assignments, whether you have the right to turn down projects, as well as a number of other factors to determine if you were hired as an independent contractor but are actually being treated as an employee.