California Independent Contractor Law Update

New Ruling Favors Workers and Helps Them Recover Unpaid Overtime.

View of a Worker and architect watching some details on a construction

Summary:

A recent decision makes it easier for workers to prove that they should be classified and paid as employees instead of independent contractors. The big difference between the two – employees must be paid overtime while independent contractors do not.

This case involved a company that decided to save on labor costs by changing its workers classification from employees to independent contractors. The workers’ job duties stayed essentially the same, but as independent contractors they did not receive overtime pay or other employee benefits. The California Supreme Court decided that a relatively simple 3 part test should be used when deciding if a worker is an employee or an independent contractor. This decision makes it more difficult for California employers to misclassify workers as independent contractors by starting out with the presumption that a worker is an employee (and therefore, entitled to overtime pay and meal and rest breaks).

Any worker in California who has been treated as an independent contractor and, as a result, not paid overtime for working more that 8 hours per day or 40 hours per week, should take a close look at this issue. Workers who have been improperly treated as independent contractors are entitled to recover back pay for unpaid overtime wages they would have received if properly classified as employees.

“The misclassification of workers as independent contractors rather than employees is a very serious problem, depriving…millions of workers of the labor law protections to which they are entitled.”

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The California Supreme Court took aim at the exploding “gig economy” and recent trend of hiring workers as independent contractors by ruling against the employer (Dynamex) and in favor of the employees by adopting a more simple test that presumes workers are employees and, therefore, entitled to overtime pay and meal and rest breaks. The court decided that the label used by companies does not matter – only if a company meets each part of an “ABC” test will a worker be legally considered an independent contractor.

The ABCs of the test are:

    (A) The worker is free from the type and degree of control and direction the hiring entity typically exercises over its employees; and

    (B) The worker performs work outside the scope of the hiring entity’s business, and whose work, therefore, would not ordinarily be viewed by others as working in the hiring entity’s business; and

    (C) The worker is customarily engaged in an independently established trade, occupation, or business, taking such steps as incorporating his business, getting a business or trade license or advertising. A hiring entity does not satisfy part C of the test simply by showing that it does not prohibit or prevent a worker from engaging in such an independent business.

All 3 parts of the test must be met to prove a worker is actually an independent contractor. If any one element is not satisfied, the worker may not legally be treated as an independent contractor and will be legally recognized as an employee…and employees in California are entitled to benefits that include overtime pay, meal breaks and rest breaks.

Avoiding the payment of time and a-half for hours worked over 8 per day and 40 per week is commonly the largest and most desired benefit of misclassification, and the labor cost savings add up very quickly. Misclassified employees in California are commonly cheated out of their overtime pay by:

  • Paying straight time for overtime, instead of time and a-half to hourly workers;
  • Using a Day Rate pay scheme that does not pay a premium for overtime hours each week; and
  • Working under a Piece Rate or Per Job scheme that does not pay a premium for overtime hours each week.

“When a worker has not independently decided to engage in an independently established business but instead is simply designated an independent contractor … there is a substantial risk that the hiring business is attempting to evade the demands of an applicable wage order through misclassification.”

Independent contractor misclassification is common in all types of industries, however, it frequently impacts workers in the following types of jobs/businesses:

For more information and to find out if you may be owed back pay due to being misclassified as an independent contractor, contact our lawyers who represent workers, not companies, in overtime pay claims. Call or submit your information using our convenient Case Evaluation form for a FREE and CONFIDENTIAL review of your circumstances.

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