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Misclassified California Worker?

We continue to file class action lawsuits in California courts alleging that employers are classifying workers as independent contractors exempt from overtime when they are in fact entitled to overtime and meal and rest breaks because they are employees.A decision recently issued by our Second Appellate Division (covering LA area) has ruled against a plainiff’s claim that he was an employee. In this case, Erin Beaumnot-Jacques vs. Farmers Group, Inc., the court held that an individual who recruited sales agents for the insurance carrier-defendant was not an employee. The relationship was specifically referenced as an independent contractor type, the “employee” filed tax returns as self-employed, and only the most general supervision of the recruiting agent was called for in the contract (you wonder if the decision would have been closer had the company actually put the agent under strict control, time schedules, etc.) The agreement the parties signed actually states that “No control is to be exercised by the Companies over the when, the place where, or the manner which the District Manager shall operate in carrying out the objectives of this Agreement, provided only that they conform to normal business practice and to applicable law.” The court cited numerous other cases, including from workman’s compensation issues, supporting their conclusion. For example, in Mission Ins. Co vs. Workers’ Comp.Appeals Bd, 123 kCal.App3d 211, 221 (1981) the court held that the plaintiff was not an employee even though they were required to wear a shirt with the name of the company on it.

The IRS has identified twenty factors in Revenue Ruling 87-41 which help the IRS determine if you are exempt or non exempt. Here they are:

1.  Is the employee instructed about when, where and how to work? In essence, does the employer control the work?

2.  Do you receive on-going training from, or at the direction of the employer? Independent contractors use their own methods and are not trained by the company.

3.  The “integration” test asks if the employee’s services are integrated into the business operations of the company. For example, replacing defective pipes at a factory would not be integrated into the company’s business of building aerospace parts (or rendering medical services, whatever the business), so that job would be done usually by a contractor.

4.  Do you have the right to assign the work to others? That’s one test of independent contractors, they hire their own employees and may delegate work to them.

5.  Do you hire, supervise or pay assistants to carry out the contract? Self-evident, you are probably a contractor.

6. Is the relationship continuing? that may indicate a regular employment relationship, and this could be true even if the work is done at regular intervals.

7. Do you have set hours of work? If so you are probably an employee. Independent contractors can come and go, just so that the job is done on time.

8. Similar to 7, are you at work full time or can you come and go, just so the job is done on time?

9. Are you required to do the work at the employer’s premises? That suggests control and employment status. A contractor can do the work wherever he/she likes.

10.  Does the employer direct you in the order or sequence of the work? This suggests detailed control over how the work is done and thus tilts the outcome to employee status.

11. Are you required to submit regular written or oral reports to the employer? Are these reports edited, comment upon, and used as “work in progress” documents? As such they may be evidence of detailed control.

12. Are you paid by the hour, week or month as opposed to being paid off of an invoice you submit? Again, that suggests employee status. (Additional penalties may be imposed on the employer if you were supposed to be paid under the time limits set forth by the California Labor Code.

13. Are your business and travel expenses paid by the employer? If so, you are more likely an employee as a contractor would include those items as part of the overall markup.

14. Who furnishes your tools and materials? If the company does, you are probably an employee as an independent contractor normally owns and uses their own tools.

15. How much have you invested in your business? That suggests exactly that –“your” business.

16. Are you entitled to make a profit or loss? Probably you are an independent contractor. An employee is not responsible for expenses or losses.

17. Can you work for more than one company at the time same?

18. Can you offer your services to the general public?

19. Has the employer told you he/she can discharge you at any time? While not the most critical factor, it does suggest employment status. An independent contractor would be dismissed pursuant to the terms of the contract.

20. Can you quit at any time without incurring liability? Then you are probably an employee.

To complicate the picture further, the IRS has created three categories of factors to assess the degree of control and independent. These are behavioral control (type of instructions you are given, training, who has the right to control details of your work); financial control (does your company have the right to control the business aspects of the job?); Relationship of Parties (evidenced by a written contract, benefits provided such as vacation or health insurance; permanent of the position, and extent to which the services performed.are part of the normal or key work of the company’s regular business).

In a case our office is currently handling, the employer found out that a competitor had been sued successfully for mis-classification of its workers. The employer rushed to the defense of the castle by unilaterally announcing that all workers would be reclassified as W-2 employees. However, no job duties changed and we believe the court will be curious as to why what was formally an independent contractor job suddenly became a W-2 position.

If you suspect that you are being improperly classified as an independent contractor, or that you are being denied overtime, meal and rest breaks by your California employer, please call me for a free consultation. California Labor Code protections may cover you.

Please check my blog for August 21, 2013, in which we cover California’s newest laws, Labor Code 226.8 and 2753, which provide amazingly harsh penalties against employers who willfully misclassify workers.