Independent Contractor Misclassification
Wrongful terminations can be financially, professionally and emotionally costly. When employers wrongly terminate workers and violate their rights, the Los Angeles wrongful termination attorneys at Moon and Yang, APC will be ready to help workers fight back, pursue justice and secure the recoveries they deserve.
Employee misclassification is when an employer labels its workers inaccurately. It does not matter if it is done on purpose, or whether it is done accidentally – both violate California law. Employers often misclassify employees as “independent contractors” in order to avoid business costs and taxes, such as employment taxes, unemployment taxes, unemployment insurance, health insurance, worker’s compensation, and more. Further, independent contractors are not afforded the same legal protections and benefits that employees receive, particularly regarding overtime, meal breaks, and rest breaks.
Many employers require that the worker sign an “independent contractor agreement”, whereby the worker “agrees” that he/she is an independent contractor. However, California workers should know that this is not determinative as to whether he/she is an independent contractor. In fact, a worker cannot simply agree to be an independent contractor through a contract. Instead, there as many factors considered when determining whether a worker is an employee or an independent contractor. These factors include the following:
Here are some of the factors that are considered in determining whether a worker is an independent contractor or an employee, and whether that worker has been misclassified as an independent contractor.
1. Does the worker perform work that is integral to the employer’s business? In an unpublished case, Garcia v. Seacon Logix, Inc., the California Court of Appeal ruled that delivery truck drivers working in the Port of Los Angeles, who were classified as independent contractors, actually were employees of a trucking company. Because the trucking company’s business consisted almost entirely of transporting cargo, the drivers’ work transporting that cargo did not constitute a distinct occupation or business.
2. Does the worker operate his/her own business, have his/her own business tax identification number, have business bank accounts or have his/her own clients? True independent contractors are in business for themselves and should have all of the indicia of stand-alone business.
3. Is the worker able to profit? True independent contractors exercise their managerial skills to make a profit or experience a loss, by making decisions about future business, engaging additional jobs, allocating resources or obtaining materials. For example, if an employer pays $500 per day to pain a house, is it possible for the worker to hire a “helper” to paint that house for $400 per day, thereby allowing the worker to profit $100? In another example, can a truck driver profit by accepting jobs from various businesses, or is that truck driver only allowed to work for a single employer?
4. Is the worker closely supervised, or is the worker instructed on what to do and how to do it? In the trucking case Garcia v. Seacon Logix, Inc., the company set the drivers’ hours, approved requests for absences, controlled the delivery assignments, monitored the progress of deliveries, and prohibited the drivers from declining assignments, all of which weighed in favor of employee status.
5. Does the job have a fixed end date? Permanency or indefiniteness in the relationship suggests that the worker is an employee, not an independent contractor. True contractors usually enter into project-based agreements to perform a specific task or provide a specific service. Once the job is completed, the relationship ends. By contrast, in the trucking case, the drivers reported for duty every day for a long extended period of time, and, when drivers took time off, they were terminated, thus indicating that they were employees.
6. Does the worker supply his/her own equipment, tools or supplies? In the trucking case, the company owned the trucks and leased them to the drivers.
7. Does the work performed require unique skills or initiative? True independent contractors typically possess specialized skills that they use in an independent way, demonstrating business initiative.
8. Is the company invoiced for the contractors’ services? True independent contractors send their clients bills for their work with specific payment terms and bear the risk of nonpayment. The company pays invoices through accounts payable. True independent contractors do not receive regular paychecks from their clients.
9. Are the workers paid by time worked, rather than on a project/job completion basis? If workers are paid based on the time spent working, rather than by the project, it is more likely that an employment relationship exists.
These are only some of the factors considered in determining whether a worker is an independent contractor, or if he/she is actually an employee. Note that all these factors do not need to be satisfied. The Court balances all these factors, and makes a determination based on all the facts. Again, you are not an independent contractor simply because the employer says that you are, nor simply because you signed a contract agreeing that you are. Many factors are considered.
Salary (As Exempt) Misclassification
In California, employees are classified as either “exempt” or non-exempt” for purposes of whether an employee is entitled to minimum wages, overtime pay, double-time pay, meal breaks, and rest breaks. Employees that are classified as “exempt” are entitled to all of these. However, “non-exempt” employees typically are not.
The benefits of being a non-exempt employee is clear. However, determining whether an employee is misclassified is far less clear. In California, many employees are improperly classified as “exempt” even though they should be entitled to benefits such as overtime pay. Unfortunately, many employees are also unaware that they are entitled to these benefits. For example, employees often believe they are not entitled to overtime pay because they receive a flat-rate salary (as opposed to an hourly wage – being paid by the hour). This is a commonnmisconception. In many instances, salaried employees are in-fact “non-exempt”, entitling them to overtime pay, meal breaks, and rest breaks.
California Labor Code Section 515 governs salaried employees, which states that a salary only pays for 40 hours of work performed each week. If a salaried employee works 45 hours per week, that employee must be paid his/her normal salary PLUS overtime for the additional 5 hours worked each week. Ultimately, it does
not matter if you receive a salary, and it does not matter if your employer says you are exempt. What matters is the nature of your work, your daily job duties, and the time you spend each workday on those duties. Contact an attorney at Moon & Yang to determine if you are misclassified as an exempt salaried employee.
Classification And Employee Rights
From your employer’s perspective, there are enormous savings in classifying an employee as “exempt.” For example, an exempt employee is not entitled to overtime pay and they do not have a right to rest or meal breaks. Unfortunately, some employers try to take advantage of this cost savings and improperly classify their employees. Employers do this to save tens of thousands of dollars in taxes and overtime pay to their employees. This improper classification, if caught, can result in significant penalties for employers.
For example, employees who are improperly classified as exempt or salaried workers are entitled to recover: all their unpaid overtime, penalties, fines, attorney’s fees, and litigation costs.
WHAT BENEFITS DO NON-EXEMPT EMPLOYEES RECEIVE?
Non-exempt employees are entitled to overtime pay of time and a half (1 ½ times your regular hourly rate) for any work performed in excess of eight (8) hours per day or forty (40) hours per week.
If you work more than 12 hours in a single day, you are entitled to double-time pay (pay at 2 times your hourly rate) for anything worked in excess of 12 hours. For example, if you work 14 hours in a single day, you are entitled to 8 hours of regular pay, 4 hours of overtime pay (1 ½ times the regular pay), and 2 hours of double-time pay (2 times the regular-pay). Additionally, if you work 7 days in a row in a single week, there are special rules governing that seventh day worked. Specifically, on that seventh consecutive day worked, you are entitled to overtime pay for the first 8 hours worked, and double-time pay for any time worked in excess of 8 hours. Again, this particular rule only applies for employees working 7 consecutive days in a week.
Non-exempt employees are entitled to meal breaks. Specifically, employees are entitled to a 30- minute duty-free meal break for every 5 hours worked. The first meal period must begin within the first 5 hours worked each day. If an employee works 10 hours, he/she must take the second 30-minute duty-free meal period within the next 5 hours worked. These 30-minute meal periods cannot be combined into a single one-hour break. Also, these meal periods are generally unpaid (meaning you are not paid during lunch, as long as it is truly duty-free and uninterrupted).
If an employer does not authorize you to take a 30-minute duty-free meal period for every 5 hours worked, you may be entitled to 1 hour of pay for every day that this occurs. Call for a free consultation.
Non-exempt employees are entitled to rest breaks. Specifically, employees are entitled to a 10- minute duty-free rest period for every 4 hours worked. The first rest break must occur within thefirst 4 hours worked, and the second must occur within the next 4 hours worked, etc. These rest breaks cannot be combined into a single long break. Also, rest breaks must be paid by the employer, meaning that the employee is still on the clock for the rest breaks. If an employer does not authorize you to take a 10-minute duty-free rest period for every 4 hours worked, you may be entitled to 1 hour of pay for every day that this occurs. Call for a free consultation.
“Waiting Time Penalties” (Failing To Pay Employee All Wages Owed At Termination)
In California, if an employee is fired or quits, he/she is entitled to all wages owed upon termination (different rules for being fired and quitting applies). An employee who is not paid all overtime due, that employee is entitled to “waiting time penalties” of 1 full day of pay for every day that the employer fails to pay these owed wages, up to a maximum of 30 days of pay.
Itemized Paystubs (Wage Statements)
In California, employees must be provided with a wage statement or pay stub that includes the hours worked during that pay period, the pay rate (including overtime pay rate), and the taxes taken out of each paycheck. An employee who is misclassified as emempt from overtime will often receive a paystub that does not include all hours worked, or the hourly rate. Instead, the pay stub may simply state “salary” and have a fixed dollar amount paid that pay period. This is improper, and any violation of the above may entitle the employee to waiting time penalties of up to $4,000.
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