Worker Classification Mistakes in California

Wage and Hour

Worker classification mistakes in California continue to make news even though labor law and court opinions define both “employee” and “independent contractor” in detail.  From the ABC test to AB5, guidance abounds, yet it sometimes seems like a moving target.

The issue is thorny because of the many different contexts in which the distinction makes a difference.  It is usually more advantageous to workers to be classified as employees because, for example, California’s laws regarding leave are quite generous to employees.

Adding to the difficulty are the many different definitions and factors used to define or classify employees and independent contractors in other laws, such as the Internal Revenue Code definitions for employees or independent contractors for federal taxation purposes.  Even there, there is room for interpretation, so the Internal Revenue Service provides hypotheticals to help taxpayers determine their proper classification.  Different again are the definition and classification for purposes of a suit filed under the Fair Labor Standards Act (FLSA), and yet another set of rules is used for classifying for purposes of a discrimination claim under California law.

Recently, the lines have been further blurred by an increasingly remote workforce and workspace.  With so many different approaches and remote work on the rise, employers need to know which set of rules applies to each worker in their employ.  It is more important than ever for employers to avoid worker classification mistakes in California, and the Law Offices of Susan A. Rodriguez, APC can help.

Worker Classification Mistakes in California: Why Worker Classification Matters in California

The issue of classification is often raised when an employer is accused of labeling a worker as an independent contractor rather than as an employee.  California Labor Code § 3351 explains what “employee” means for purposes of California’s tricky wage and hours laws, and California Labor Code § 3353 provides when a worker can be classified as an “independent contractor.”  The two terms look very different in their meaning, and the differences turn in large part on how much control is exerted over the worker and the means of the work. 

Many past and present lawsuits are based on disagreement over these classifications.  Workers seek “employee” status because the classification provides them with benefits like these that independent contractor do not receive:

  • Medical leave.
  • Paid sick days.
  • Pregnancy disability leave.
  • Family Leave, including leave under the New Parent Leave Act.
  • Time off to attend children’s school activities.
  • Health benefits and insurance.
  • Vacation leave.
  • Compensation packages.
  • Domestic violence leave.
  • Workers’ compensation.
  • Unemployment benefits.

The distinction is also important because employees have additional rights under California law that can add up:

  • Payment for overtime work.
  • Meal and rest breaks.
  • Minimum wage.

There are various reasons a worker might enjoy independent contractor status, such as the flexibility to choose the kind and amount of work to take on and the freedom to choose in what manner to conduct the work.  However, the many advantages to having employee status means employers could be on the hook for significant penalties for worker classification mistakes in California.

The Role of the ABC Test

As of 2019, AB 5 requires the use of the ABC test for purposes of the California Labor Code, the Unemployment Insurance Code and the Industrial Welfare Commission wage orders.  The ABC test provides a roadmap for distinguishing between employees and independent contractors.  In particular, the test reviews the amount of direction and control of the hiring entity, whether the work is outside the course of the employer’s business and whether the worker normally works in the trade or business.

The existence of a test has not yet provided predictability intended.  Legal challenges to AB5 and exceptions written into the statute for certain industries have made It difficult for employers to easily determine where the lines are drawn.

Particularly Problematic Areas

The fear of worker classification mistakes in California is a real one, and rightly so.  The consequences for misclassification are steep.  An employee may sue the employer for misclassification.  If the employee prevails, the employer could be liable the value of significant benefits over the period of misclassification.  Worse still, the worker could file a Private Attorneys General Act (PAGA) claim, filing a lawsuit on behalf of the plaintiff worker and all similarly situated workers, significantly raising the stakes if worker prevails.

Certain industries appear to be at greater risk for exposure to worker misclassification claims in California:

  • Construction industry.
  • Franchise relationships.
  • A volunteer relationship.
  • A training situation.
  • Home-based workers.

An experienced law firm understands the heightened awareness of classification status in such industries.

The increase in home-based workers has convoluted the matter, and employers must stay vigilant in constantly reviewing relationships to ensure there is no chance, even an inadvertent one, for worker classification mistakes.

Work with a Firm That Understands Employment Relationships

The Law Offices of Susan A. Rodriguez, APC understands the shifting nature of employees and independent contractor and are ready to help employers avoid worker classification mistakes in California.  We track the changing landscape of California laws on independent contractors vs. employees.  To prevent falling into the trap of misunderstanding an alleged employment relationship or for help dealing with the fallout if that occurs, call Susan at (213) 943-1323 or request an appointment using our online contact form.

Posted by Susan A. Rodriguez, Esq.

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