22 Aug Should Your Workers Really Be Classified As Independent Contractors?
(By Anthony S. Khoury, Of Counsel to the Law Firm of Levine & Blit LLP)
As you’ve probably already encountered, one of the biggest issues facing California employers today is determining whether or not the people that work for you—in whatever capacity—are just independent contractors, or in fact, employees. In an attempt to avoid payroll taxes, and/or workers’ compensation and unemployment insurance, many employers often make the erroneous assumption that entering into a written independent contractor agreement, issuing a 1099 form instead of a W-2 for tax purposes, or simply telling a worker that he or she is an independent contractor and will never be considered an employee, is sufficient to make such a designation hold up from a legal standpoint. Even if a worker agrees to an employer’s independent contractor designation, you’re not in the clear.
On the contrary, and in California particularly, employers who engage in these types of superficial designations can find themselves in a lot of trouble. Pursuant to section 226.8 of the California Labor Code, employers are prohibited from willfully misclassifying employees as independent contractors. As detailed in S. G. Borello & Sons, Inc. v Dept. of Industrial Relations (1989) 48 Cal.3d 341, California courts consider the following factors when determining whether an individual is an independent contractor or an employee:
- whether the one performing services is engaged in an occupation distinct from that of the principal;
- the kind of occupation, with reference to whether, in the locality, the work is done under the direction of the principal or by a specialist without supervision;
- the skill required in that particular occupation;
- whether the principal or worker supplies the instrumentalities, tools, and the place of work for the person doing the work;
- the length of time by which the services are to be completed;
- the method of payment, whether by the time or by the job;
- whether the parties believe they are creating the relationship of employer-employee; and
- whether the principal maintains the right to discharge the worker at will, without cause. The most important factor, however, is whether the employer exercises discretion and control over the manner and means in which the desired results are accomplished.
For example, an independent contractor typically sets his or her own schedule, uses his or her own personal method for completing assigned tasks, has the discretion to accept or turn down work on a task-by-task basis, and is generally free to accept work from other employers. An employee, though, typically has a set schedule, must complete all tasks assigned by a manager, is trained to use the employer’s methods for completing an assigned task, and cannot accept work from other employers.
An employer that willfully misclassifies workers as independent contractors is likely to find itself sued for misclassification, along with other wage and hour violations (such as failure to pay overtime, failure to provide an itemized wage statement, or failure to provide meal and rest breaks), and is very likely to find itself being investigated by the IRS and the Employment Development Department (“EDD”). In addition, in California, an employee can file a Private Attorneys General Act (“PAGA”) action on behalf of all of an employer’s aggrieved employees, and if found liable, an employer could potentially face hundreds of thousands of dollars, or more, in penalties payable both to the aggrieved employees and the Labor and Workforce Development Agency (“LWDA”).
In order to avoid the costs of litigation, and all of the potential damages, penalties, and lost resources, you should consult with an attorney that specializes in employment law in order to ensure that workers are properly classified as employees or independent contractors. Taking a proactive approach by consulting with an attorney, and erring on the side of treating your workers as employees when you’re not sure, is the safest way to go. Levine & Blit LLP is a California employment law firm, and our legal team is available to answer your questions about misclassification of workers, as well as any other worker-related matters. We can be reached at (310) 281-0100 or at firstname.lastname@example.org.