The U.S. Labor Department is giving employers more leeway to rip off workers by tagging them as independent contractors. That does not fly in California, where the state law has not changed.
The federal agency said in February that it plans to enact a new regulation to make it easier for employers nationwide to classify workers as contractors rather than employees. Contractors are largely treated like self-employed entrepreneurs: they are not covered by minimum wage and overtime pay laws, are not eligible for unemployment or workers’ compensation benefits, and cannot join unions.
The Labor Department’s new rule will undo the agency’s approach under the Biden administration, which made it more difficult for employers to treat workers as contractors. The move extends partisan flip-flopping on the worker classification issue that stretches back to the Obama administration, leaving tens of millions of workers’ legal rights on the job subject to the whims of political operatives.
Not in California. The good news for working people in the Golden State is that California law strictly limits the use of the independent contractor classification. That law has not changed. It continues to apply to the overwhelming majority of employers and workers in the state, regardless of what happens at the federal level.
At Justice Law Corporation, we help working people across the state ensure that they are fully paid and fight back when they are shortchanged. Our California wage and hour attorneys combine decades of experience with a strong track record of successful results for the people we represent.
Here is what you need to know about misclassification.
Misclassification = Wage Theft
Worker misclassification is a form of wage theft. Employers take tens of thousands of dollars out of workers’ hands every year by misclassifying them as contractors rather than employees.
The contractor classification was long envisioned to cover workers who are truly independent, such as freelancers and sole proprietors who offer services to multiple entities. Over the last decade-plus, however, many employers have ballooned their ranks of “contractors” to cut costs and reduce potential liability.
“Workers are often unaware they are being misclassified and denied basic rights,” California Labor Commissioner Lilia García-Brower said after her office cited a Long Beach home health care company for wrongly treating employees as contractors. “Unscrupulous employers who misclassify workers do so not only to dodge obligations but also to gain an unfair business advantage over employers who comply with the law.”
The gig economy is a prime example. Rideshare drivers for Uber and Lyft, grocery shoppers for Instacart, and food deliverers for DoorDash and GrubHub are widely classified as contractors. That means they do not have the legal right to:
- Minimum wages
- Overtime pay
- Anti-discrimination and retaliation laws
- Workers’ compensation
- Workplace safety rules
- Union rights
- Unemployment insurance
Gig workers are not the only ones missing out on these rights and protections. Employers are using the contractor tag for a wide range of other workers, including many in positions traditionally considered employee roles.
The U.S. Labor Department is making the problem worse by relaxing the federal standard for classifying workers as contractors. The proposed rule is expected to be finalized by the end of the year, although it could be challenged in court.
The agency has painted the move as bringing necessary clarity to employers and workers about who is an employee and who is a contractor. The new rule “is aimed at ensuring that workers and employers know how to apply those principles predictably,” one department official said in rolling out the proposal.
The reality is that the new rule will make it easier for employers to rip off working people. Robert Scott, a top Democrat on the House Education and the Workforce Committee, called the move a “radical” change for workers and their families.
“By codifying the pervasive trend of employers misclassifying their employees as independent contractors, the proposed rule will strip workers of their basic wage and hour protections and leave law-abiding businesses at a competitive disadvantage,” Scott said in response to the proposal. “This is a devastating consequence for working families who are already struggling.”
Employee vs. Contractor in California
The good news is that employers cannot simply choose who is a contractor and who is an employee. To qualify as an independent contractor in California, a person must exercise significant control over how they perform the work and meet other requirements.
California law uses what is often called the “ABC test” to determine whether workers are employees or contractors. Workers are presumed to be employees unless they meet all three of these requirements:
- The worker is free from the control and direction of the hiring entity in connection with the performance of the work;
- The worker performs work that is outside the usual course of the hiring entity’s business; and
- The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
Anyone who does not satisfy all three parts of the test is likely an employee, even if their boss treats them as a contractor.
In 2019, the state legislature codified this approach in AB 5, a landmark workers’ rights law. Although this standard has been enshrined in the courts and the legislature, employers across California continue to shirk their responsibilities by wrongly classifying employees as contractors.
Challenging Your Independent Contractor Status: Class Actions
Workers who believe they have been misclassified as contractors can take legal action, suing to force their employers to reclassify them as employees. They can also seek back pay and other compensation for the financial harm caused by the misclassification.
Workers can pursue these claims individually or join together in class actions to hold their employers responsible.
Class actions are lawsuits in which groups of workers pursuing similar claims sue their employers collectively. Employees often use these suits to challenge their employers’ policies or practices that water down pay across a large group of employees. That includes situations in which employers wrongly classify large groups of workers as independent contractors, rather than employees.
Class actions give working people the power to level the playing field with massive corporations and other large employers. They also give workers leverage to push employers to pay them what they are owed and to change pay and other policies to avoid similar suits in the future.
Employees in wage and hour class actions generally can seek:
- Back pay
- Interest on unpaid wages
- Penalties
- Attorneys’ fees and court costs
In some cases, workers’ individual claims may be too small to justify bringing suits individually. That is where class actions come in. An employer who shortchanges hundreds or thousands of workers in the same way faces a much larger potential bill than if each worker pursues their claim separately.
To proceed as a class action, the lawsuit must be certified by a court. This process is intended to determine whether the case is appropriate for group litigation rather than individual claims.
Courts typically focus on four factors in deciding whether to certify a suit as a class action.
- Numerosity: The class must be large enough that individual lawsuits would be inefficient.
- Commonality: There must be legal or factual issues shared by all class members.
- Typicality: The claims of the class representatives must be typical of those of the group.
- Adequacy: The representatives and their attorneys must fairly and adequately protect the interests of the class.
If certification is granted, the court usually sends notice to all potential class members. These individuals can either remain in the class—meaning they are bound by the outcome of the case—or opt out and pursue their own separate lawsuit if they prefer. Staying in the class usually means sharing in any financial settlement or judgment awarded.
At Justice Law Corporation, we have had significant success using class actions to help workers fight back and get the money they are owed from their employers.
Our California Wage and Hour Attorneys Can Help
If you believe that you are being shortchanged on the job, whether it is by being underpaid or in other terms and conditions, you do not need to go it alone. A California wage and hour attorney at Justice Law Corporation can help you evaluate your claim and take action.
Our office is conveniently located in Pasadena. Contact us at (818) 230-7502 to schedule a free consultation with a California wage and hour attorney.
