California Cracks Down on Worker Misclassification

Companies Avoided Paying Workers Overtime

Unfortunately, companies across the country consistently try to find loopholes to avoid paying workers overtime, including the age-old scheme of misclassifying employees as independent contractors. The misclassification as independent contractors is a major problem in California in particular, where it costs workers many millions of dollars in lost overtime pay each year. The practice of misclassification is illegal, and the government is imposing stiff penalties to crack down on employers who misclassify their workers to avoid California overtime pay.

Increased Penalties for Purposeful Misclassification

California is known for providing greater protection through state laws than federal wage and labor laws, comparatively. Recently, the legislature enacted the Independent Contractor Misclassification Law, which increases penalties for purposeful misclassification. Prior to this law, willful misclassification cost employers $5,000 per violation. The new law can now cost employers up to $25,000 per misclassification. Additionally, third-party advisors such as accountants or HR professionals who may have had knowledge of the offense can also be held liable. To further discourage illegal classification, any employer who violates this new California law must display notice of the violation on the homepage of their website, which obviously deters potential employees from applying and acts as an impairment to the company’s reputation.

California Case Example

In one recent California case, Otey vs. CrowdFlower, the employer allegedly failed to pay employees the minimum wage as well as misclassified employees as independent contractors to avoid paying overtime. CrowdFlower, a tech company based in the Mission District, not only underpaid workers, but also contends that labor laws don’t apply to this new form of labor, where individuals around the globe complete micro-tasks via web for compensation that can range from conventional currency and airline miles to online gaming points. However, Christopher Otey, a “virtual worker,” filed a lawsuit in federal court saying that CrowdFlower broke the law by paying less than the federal minimum wage of $7.25 an hour and misclassified employees as independent contractors.

So far, 21 states have passed laws to increase penalties against employers who misclassify workers, as well as limit the use of independent contractors. A few highly-populated states that have passed similar laws to California include Florida, Illinois, New York, and Pennsylvania. These states are now targeting specific industries that are susceptible to misclassification, including the oil and gas industry, engineering services, disaster cleanup, IT/technical support, and field service.

If you feel you are a victim of misclassification, it’s important to contact an experienced law firm in order to get the overtime pay that is rightfully yours.

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