More than 19% of independent contractors in the construction industry are misclassified. Misclassification of employees happens across various professions where organizations prefer to outsource their core businesses to “independent contractors.” Many employers in Long Beach and the larger California state misclassify employees as independent contractors to circumvent their responsibilities towards their employees. Employers have a lot to gain by hiring independent contractors. The employer will not have to pay any benefits or take responsibility for meal breaks, rest breaks, and workers’ compensation in case of an accident.
In recent years, California labor laws have become stricter in ensuring that employees are treated right and receive the benefits to which they are entitled. In this article, The Workers Compensation Attorney Group explains who is an independent contractor, as well as California laws on overtime for 1099 independent contractors.
Who is an Independent Contractor?
Being an independent contractor gives you the freedom to control your hours, the type of work you do, and the fees you charge. In addition, you do not have to be in a long-term relationship with the employer. In exchange for the freedom and better earnings, you give up the right to receive benefits that are legally allowed for employees.
However, employers may loosely use the term “independent contractor” to take advantage of your services, and avoid their legal responsibilities as an employer. It is important to note that neither the federal government nor California has a set definition of an independent contractor.
Loosely defined, an independent contractor is one who exercises control over the performance of a service he or she is providing to the hiring entity. Under California labor laws, an independent contractor is one who:
- Performs a service and is paid a specific amount after achieving a specific result as defined by the hiring entity
- He or she is in control of how the work is done to achieve the result the client requested
If the receiver of the service exercises control over the work, then you are an employee and are entitled to the same treatment as other employees. You are also regarded as an independent contractor under the Fair Employment and Housing Act of California if:
- You are free from the control of the hiring entity
- The work or service you perform is outside the usual business of the employer
- You are engaged in an independent occupation of the same nature as the work you are providing
The FEHA test above is a summary of the ABC test adopted by the California Supreme Court after the Dynamex case. The test is in response to businesses that are increasingly hiring employees and misclassifying them as independent contractors since they meet the loose standards previously based on the 1989 Borello case.
Most employers find it hard to prove that the services the worker is providing are not related to the central business of the organization. Let us look at the ABC principle in detail:
Under this principle, the hiring entity has to prove that it does not have behavioral, financial, or relationship control over the worker. When determining whether the hiring entity meets this standard, the court will examine the specific case instead of using general standards.
The only control the principal has over an independent contractor is the result. For example, if a company hires you as an independent contractor to deliver a package, then the only control the principal has is that the item reaches the recipient, not the means through which the delivery is achieved.
The Nature of the Work
Let us say a bakery hires you as an independent contractor to provide specialized cake decoration services. Under the ABC test, you are an employee since cake decoration is part of the bakery’s central business. However, if the same bakery hires you to install or maintain the plumbing in its premises, then the work is outside the scope of the central business of the bakery.
Whether the Worker Engages in an Independent Business
Usually, an independent contractor should be a person who has set a practice offering specific services to different clients. If you hire a driver as an independent contractor, you have to prove that the worker has an established practice that offers driving services.
Federal, as well as California labor laws, places the burden of proof upon the employer, which makes it harder for employers to misclassify you.
You may also be called a 1099 independent contractor meaning that you are a self-employed contractor who offers services to other businesses. 1099 is the IRS tax form you receive every year reflecting your annual earnings. You can also file an SS-8 form with the IRS. The form is a worker identification status that helps you determine your standing as either an employee or an independent contractor for taxation purposes. The IRS will provide feedback after six months. You can use the feedback as a basis for fighting misclassification.
California Overtime Laws
California employees except for independent contractors and exempt employees are entitled to compensation for overtime. Independent contractors are not eligible for overtime as they exercise control over the number of hours and days in which they work.
Under the overtime laws, you are entitled to pay if you work for more than:
- 8 hours in a workday
- 40 hours in a workweek, and
- Six days in one workweek
If you work overtime, your employer should pay you one and a half of your regular hourly pay. You may be eligible for double-time overtime pay under the following g circumstances:
- Work in excess of 12 hours in one workday
- Any work exceeding eight hours on the seventh day of the workweek
You are entitled to overtime even if your employer has not authorized overtime. This rule applies when your employer is aware or has reason to believe that you are working overtime and still permits it. Before working unauthorized overtime, you have to ensure that your employer’s policy allows it. If not, you may face disciplinary action.
Even with the legal requirement for employers to compensate you for overtime, he or she may still fail to do so. Some ignore the payment altogether, while others may misclassify you to evade their responsibilities.
Misclassification as an Independent Contractor
As an independent contractor, you are not covered by California wage laws and are ineligible for workers’ compensation. In addition, you are responsible for making deductions on your income for taxes and healthcare, among others. Such exclusions create a big incentive for employers to misclassify you as an independent contractor.
The common reasons why employers misclassify employees include:
- To avoid their legal responsibilities such as abiding by minimum wage and hour laws
- To circumvent civil protections granted to employees by the Equal Employment Opportunity Commission
- To avoid collective bargaining agreements that protect unionized employees
- To save money that could have been used to pay employee health coverage or pension plans
- To circumvent the legal requirement to prove that employees are legal citizens of the US
In most cases, your employer must have provided you with a contract indicating that you are hired as an independent contractor, thus waiving your rights under the California wage laws.
Once you realize you have been misclassified, you need to get in touch with an employment attorney. The attorney will help you in identifying the violations, your rights, and the possible compensation that the employer owes you.
Federal and state governments use different rules when determining whether your employer has misclassified you. The tests are built upon the relationship between you and the hiring entity, the nature of the work, and the control of the principal exercises.
The federal Fair Labor Standards Act uses an “economic realities” test to determine a misclassification. The components of the test include:
- The extent to which the service provided is a central part of the hiring entity
- The length of the relationship
- The nature and the extent to which the hiring entity exercises control over the service provided
- The investment by the hiring entity in facilities, tools, and equipment used
- The opportunities the principal and independent contractor have in making a profit or loss from the service
It is important to note that the place you work, the time you work, the mode of payment, and your licensing might not affect your status as an independent contractor or an employee under the federal courts. However, California rarely uses the “economic realities” test, preferring instead to use the standards under its Fair Employment and Housing Act.
In addition, you can use the IRS 20-factor test to determine whether you are an employee or an independent contractor. These factors include:
- Whether the business requires mandatory training that the hiring entity provides
- Whether the hiring entity hires, supervises, or pays assistants on your behalf
- Whether your services are available to the public or are exclusive to the hiring entity
- Whether the services you are providing are integral to the operations of the hiring business
- Whether the relationship is continuous or is on a project to project basis
- Whether the hiring entity has unanimous control over-discharging you
- The flexibility of your schedule and the amount of control the hiring entity has
- Whether you provide the services full-time
- The level to which the principal provides instructions and directions for the work
- Whether the employer requires you to work off or on-site
- The mode and frequency of payment
- Whether the hiring entity requires you to handle the work yourself, or if you are free to outsource
- Whether the worker provides the tools and equipment for the work
- Whether you have any chance of getting profits or losses
- Whether you are required to provide reports of your work on the projects you are working on
- The control the hiring entity has on the sequence of your work
- Whether you simultaneously provide similar services to unrelated organizations
The IRS standards can be summarized as:
Behavioral standards determine who controls your work hours, whose equipment you are using, and who controls your work.
1099 independent contractors are paid on a project-to-project basis instead of a per-hour basis
- Type of relationship
Are you in an employer-employee relationship? Then you are an employee, not an independent contractor.
Most of these tests have some similar components that determine whether you are an employee or an independent contractor. This is because; there is no set definition of an independent contractor. Usually, federal laws provide brief definitions, unlike California labor laws. The latter requires employers to prove that the independent contractor fully meets the definition of an independent contractor.
The California Labor Code 226.8 makes it illegal for employers to misclassify you as an independent contractor whilst you are an employee. Under this law, your employer will face penalties of between $5000 and $10000 for every violation. If your employer regularly misclassified employees as independent contractors, then the fines increase to between $10,000 and $25,000.
In addition to the above civil penalties, your employer may face felony charges from the IRS. If found guilty, he or she may face a prison term of up to five years and pay fines of up to $100,000.
Some of the damages for which your employer will be required to compensate you include:
- Unpaid overtime and missed rest and meal breaks
- Attorney and litigation fees
- Penalties and interest earned
- Any injuries you sustained at the workplace
What to Do When Your Employer Does Not Pay Overtime
Misclassification, as an independent contractor is disadvantageous to you as it places extra and unnecessary costs on your income. In addition, you are likely to have a lower income and lower economic security.
You can either file a wage claim or sue your employer in court if you believe he or she is misclassifying you to avoid California overtime laws.
The process of filing a wage claim begins at the Local Division of Labor Enforcement Standards. After you file the claim, the processing begins. Here, the office of the labor commissioner will determine your status as either an independent contractor or an employee.
The deputy labor commissioner responsible for your case will begin the investigation of your case to determine the best course of action. At this stage, your case may be dismissed or proceed to a conference or a hearing.
If you are to attend a conference, both you and your employer will decide on whether to settle the matter at that point or proceed to a hearing. Before deciding to settle, you have to examine the amount owed to you, the potential compensation, and the amount you are willing to settle for.
During the conference, the validity of your claim will be investigated as well. In case you do not settle, the case will proceed to a hearing, which is considerably more thorough than the hearing.
It features an informal setting similar to a court. You and your employer may bring in representatives, who are not necessarily lawyers. During the hearing, you will take an oath and go on the record. You are allowed to present any evidence to support your claim. Make sure you have enough copies to give to the participants. In addition, carry the original copies for verification.
To prepare for a conference, go through the evidence and questions you have for your employer. If you feel unsure about the whole process, it is best to hire an employment law attorney to help you with the process.
The Labor Commissioner’s Office will mail you and your employer a copy of the Order, Decision, or Award about a fortnight after the hearing. The ODA informs you about the outcome of the hearing. If either you or your employer is not satisfied with the ODA, then you can file an appeal with the local civil court.
In the court, you will go through trials and have a chance to present evidence and witnesses. The court will then decide your status as either an employee or an independent contractor. In case you cannot hire a lawyer, the Division of Labor Standards Enforcement will provide you with a representative.
If neither you nor your employer appeal, the ODA will be entered in the local court as the final judgment. Where the ruling was in your favor, you could leave the DLSE to collect the judgment, or you can do it yourself.
If you choose to go directly to the court, you should get an attorney who will look at the violations and the laws the employer has broken. Before you sue your employer through the court, you have to determine whether the damages you are looking for are worth the effort.
For example, for overtime and other wage-related claims, you can pursue compensation through the labor division. However, if you are suing for missing benefits such as workers’ compensation, unemployment benefits, or wrongful termination, then the court may be a better choice.
You can form a class-action lawsuit against the employer with other misclassified employees. Regardless of the option you choose, you should be aware of the legal protection against employer retaliation for exercising your legal rights.
Retaliation comes in the form of subtle or bold negative actions against you. These may include wrongful termination, demotion, and harassment, among others. If you experience retaliation, you should contact the local Labor office to file a claim.
Statute of Limitations
Procrastinating on taking action against an employer who has misclassified you can be costly. If you miss the deadlines, then you are likely to lose all the overtime you deserve.
If you are unsure about your classification, it is important you contact a workers’ compensation attorney as soon as you detect foul play. Your lawyer will provide you with an objective and detailed analysis of your situation.
Once you are sure that you are misclassified, then file a claim with the court or with the DLSE as soon as possible. Usually, the statute of limitations for such claims is two years. The period may increase to three years if your employer willfully misclassified you.
Unlike in personal injury lawsuits, the statute of limitations for unpaid overtime applies a look-back period of two or three years. This means that, when you file a lawsuit, you are eligible for overtime pay for a period of two years backward, from the day you file the claim. Therefore, delaying to file a lawsuit minimizes the amount of damages you are likely to recover. California extends the look-back period to four years, which gives you just enough time to fight for your rights.
Joining a class-action Lawsuit
You can sue your employer in court as an individual or join other misclassified employees against the same employer. A class-action suit is stronger than an individual case and has a higher chance of success. In California, you are automatically added into a class-action suit if there are several plaintiffs with a similar case against the same defendant. However, you are not required to remain a part of the suit. You can opt-out and sue individually.
Suing individually has some benefits, such as higher compensation for your damages. The compensation you receive depends on the period you worked as a misclassified employee, overtime hours, pay owed to you, and the interest accrued.
In a class-action suit, the settlement is divided among all the plaintiffs, which reduces the chances of getting full compensation for your damages. However, with an individual suit, your lawyer has enough wiggle room to negotiate higher compensation.
Before you opt to remain in a class-action suit, you have to understand that in case you lose the case, you have no chance to bring an individual suit against the employer.
Find a Long Beach Workers Compensation Attorney Near Me
Understanding employment law is complicated. If you are hired as an independent contractor, talk to an attorney to determine whether the client is breaking any laws by treating you as an employee. As mentioned earlier, there is a possibility that you are misclassified as an independent contractor. With The Workers Compensation Attorney Group, you can now fight for your rights by taking legal action against misclassification as a 1099 independent contractor. Call us today at 714-716-5933 for a free consultation. We also offer contingency-based services, meaning that we are paid when you win. Therefore, we take time to gather evidence about your employment status before representing you.