Employment Misclassification: Consequences and Legal Action

Introduction

In the previous blog, we discussed the importance of correctly classifying employees. Here, we will cover the consequences of misclassification and also the steps you can take to protect your rights regarding your worker status.

Misclassification Issues and Consequences

1. Unpaid Overtime and Minimum Wage Violations

Organizations that misclassify employees as independent contractors may be liable for back wages, including overtime and wages that fail to adhere to minimum wage laws. They may also be liable for employment taxes, unemployment insurance claims, workers’ compensation claims, violations of family and medical leave requirements, and missed benefits. Moreover, these entities might be subject to related liquated damages, fines, and attorneys’ fees.

Under California law, in addition to penalties that may be assessed for wage violations associated with a worker being misclassified as an independent contractor, there are civil penalties for willful misclassification. Under California Labor Code Section 226.8, which prohibits the willful misclassification of individuals as independent contractors, there are civil penalties of between $5,000 and $25,000 per violation. Willful misclassification is defined as voluntarily and knowingly misclassifying an employee as an independent contractor.

2. Lack of Benefits and Protections

Misclassification denies employees access to critical benefits and legal protections they are entitled to, such as overtime, the minimum wage, family and medical leave, health benefits, unemployment insurance, retirement contributions, worker’s compensation, and other legal protections mentioned above.

The low wages, unreliable work, unpredictable schedules, lack of paid time off, and a lack of job security that often accompany work with an independent contractor status can make it hard for workers to deal with unexpected personal events without losing work opportunities. In turn this results in economic insecurity. This economic insecurity, along with the lack of legal protections previously mentioned can leave workers vulnerable to exploitation.

Protecting Your Rights as an Employee Misclassified as an Independent Contractor

Recognizing Signs of Misclassification

Red flags that might indicate you have been misclassified as an independent contractor include if you: 

• are required to use company equipment, a company-issued computer, and/or email;
• are required to attend employee meetings and training sessions;
• are paid at regular intervals rather than submitting periodic invoices for work completed;
• have worked continuously for extended periods, such as a year or more;
• are invited to participate in employee engagement surveys;
• are required to use performance management software to track your work in the same manner as employees are;
• have a mandatory specific schedule and a manager/supervisor tells you when you are allowed to take breaks;
• are required to wear a uniform or bound by a specific dress code;
• are told to refer to the person(s) our report to as “boss” or “supervisor,” and
• do not have a written contract with provisions covering negotiated rates for hourly or piece work, and/or expenses.

Misclassification is widespread in all industries but particularly in labor-intensive jobs. Common industries or job roles where misclassification is prevalent include:

• “gig economy” work, such as application-based work – for example, Uber, Lyft, Grubhub, Instacart, Amazon Flex, and TaskRabbit;
• agricultural work;
• trucking;
• nursing;
• home healthcare;
• personal services;
• janitors;
• stagehands and other backstage work;
• catering;
• hospitality industry work, including restaurants and hotel/motel staff;
• landscapers and other yard work;
• musicians and other entertainers;
• security personnel;
• construction work; and
• cable/internet service installation.

Steps to Address Misclassification

As noted above, worker misclassification may be intentional or inadvertent. Thus, if you suspect that you have been misclassified as an independent contractor, bring it to the attention of management or human resources. Written communication is a good idea; that way, your concerns will be documented. 

But if the company/organization will not address or correct your concerns, you may file a complaint with the California Labor Commissioner.

It is vital to keep good records to support a potential misclassification claim and to determine whether and how much you may be owed in terms of overtime, other wages, and benefits. Records you want to keep include time sheets/cards, reimbursement documents, work schedules, emails or text messages with the company, and any other documents that show your work hours and earnings. Other important records may include written contracts, agreements, or notices that describe the terms and conditions of your work, including pay rate and whether you’re paid by the hour, shift, day, or piece.

Seeking Legal Assistance

Should you suspect your worker status is misclassified, it is important to act as soon as possible because there are legal time limits to bring certain types of misclassification claims. Therefore, do not hesitate to contact a qualified attorney who knows the laws applicable to your situation. Legal counsel can help you understand your rights, your available options, and advise you on gathering the necessary documents and witnesses to support your claim. A lawyer can also protect your rights by negotiating with employers and other entities, and when necessary, the attorney may also represent you in court.

The experienced employment law lawyers at Rothschild & Alwill, APC can advise you on a potential misclassification claim. Email us or call or office in our Central Valley office in Bakersfield at (661-369-8510) or in Santa Barbara at (805-845-1190) to schedule an initial confidential consultation at no charge. Se habla Español.

Conclusion

The consequences of worker misclassification can result in serious legal and financial implications for both workers and employers. Organizations that misclassify employees as independent contractors can be held liable for back taxes, wages, and benefits as well as fines and other penalties. When workers are misclassified, they lose out on the benefits and protections required by federal, state, and local laws.

Do not miss out on important legal rights, compensation, and benefit opportunities due to misclassification of your worker status! Pay attention to your working terms and conditions and stay vigilant and informed regarding your circumstances and legal rights.