Misclassification

California has been a pioneer in addressing worker misclassification with its robust legal provisions. The landmark Assembly Bill 5 (AB5), which came into effect in 2020, redefined the criteria for classifying workers, centering on the “ABC test”. To classify a worker as an independent contractor under AB5, an employer must prove:

1. The worker is free from the company’s control and direction in connection with the performance of the work.
2. The worker performs tasks that are outside the usual course of the company’s business activities.
3. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

In cases where the ABC test does not apply, the multifactor test from S.G. Borello & Sons, Inc. v. Department of Industrial Relations can be utilized. This test considers aspects like the right to discharge, the method of payment, and the nature of the work performed. The nuances of AB5 have dramatically shifted the employment landscape, compelling businesses to re-evaluate and often reclassify many independent contractors to employees. Additionally, the Labor Code Section 226.8 stipulates that willful misclassification can result in steep penalties, ranging from $5,000 to $25,000 per violation, underscoring the state’s stern stance on the issue. Attorneys, when representing misclassified workers, lean heavily on these provisions. Armed with the mandates of AB5 and Labor Code Section 226.8, along with other relevant labor codes, Miracle Mile Law Group takes on employers who have sidestepped their responsibilities, ensuring that workers receive the recognition and benefits they rightfully deserve.

At the federal level, protection against worker misclassification primarily hinges on the Fair Labor Standards Act (FLSA). The FLSA establishes standards for minimum wage, overtime pay, and child labor, and its applicability is determined based on an “economic realities” test rather than a strict definition of employment. This test considers several factors to determine if a worker is economically dependent on the employer (thus an employee) or truly in business for themselves (an independent contractor). Elements of this test include the degree of control exerted by the employer, the worker’s opportunity for profit or loss, and the permanency of the working relationship. The Internal Revenue Service (IRS) also has its criteria, mainly the Common Law Test, which considers the nature and degree of control the employer has over the worker. While not explicitly a misclassification statute, the IRS’s rules can have tax implications for both workers and employers. Misclassification can result in back taxes, penalties, and interest. Additionally, other federal laws like the Family and Medical Leave Act (FMLA) and the Employee Retirement Income Security Act (ERISA) have stipulations that can be affected by misclassification. Workers and attorneys can utilize these federal provisions in tandem with state laws to challenge and rectify misclassification, ensuring workers are granted the rights and benefits they are due.

1. 1. 1. Deprivation of Overtime: Workers misclassified might not receive overtime pay even after putting in extra hours.
      2. Lack of Benefits: Misclassified workers may miss out on health insurance, retirement contributions, and other employee benefits.
      3. Tax Liabilities: Independent contractors have to shoulder self-employment taxes, potentially increasing their tax burdens.
      4. No Workers’ Compensation: If misclassified, a worker might not be covered under the employer’s workers’ compensation insurance, leaving them vulnerable in case of work-related injuries.

When workers are unjustly labeled as independent contractors instead of bona fide employees, they’re often denied a slew of legal protections and benefits. If successful in a misclassification lawsuit, these workers could recover a variety of compensations. This includes back pay for unpaid overtime and minimum wages they should have earned under state and federal wage and hour laws. They could also be eligible for reimbursement for expenses that should have been borne by the employer. Additionally, they might recover missed benefits such as health insurance, retirement contributions, and even bonuses or profit-sharing they would have been entitled to as employees. Compensation could also cover the difference in taxes paid, since employees and independent contractors have differing tax liabilities. In cases where the misclassification is found to be intentional, workers might be awarded penalties under state laws, as well as interest on the unpaid wages. Moreover, if the worker faced retaliation or was terminated for raising the issue, they might be entitled to damages for wrongful termination or retaliation. Miracle Mile Law Group diligently works to ensure that misclassified workers gain the comprehensive restitution they are owed, redressing the imbalance and injustice caused by improper categorization.

Misclassification not only affects individual workers but undermines the spirit of employment laws designed to protect worker rights. Employers who wrongly classify workers can face hefty fines, back pay, and be required to extend benefits retroactively. At Miracle Mile Law Group, our dedicated team leverages the nuances of California laws, such as AB5, in tandem with federal regulations to advocate for workers’ rights. Every worker deserves their rightful benefits, and we stand firm in ensuring they get them.