Government in Pursuit of Employers Willfully Misclassifying California Workers

Federal and state agencies are joining forces to investigate companies who are illegally classifying workers as independent contractors when they meet the criteria of regular employees. California joins 12 other states with similar agreements with the U.S. Department of Labor (DOL). By working together, the agencies will be able to share information and cut down on duplicate efforts. The agencies plan to hunt for companies violating wage and hour laws by scrutinizing employee complaints, surveillance and other intelligence resources.

Those found in violation of wage and hour laws will face stiff penalties. In fact, a new California law increasing penalties for willful misclassification of individuals as independent contractors went into effect January 1, 2012.

California's Labor Code and Willful Misclassification

The new law added sections to California's Labor Code (226.8 and 2753). In accordance with the new sections, employers who willfully misclassify employees are in violation of the law. Willful classification is defined as "avoiding employee status for an individual by voluntarily or knowingly misclassifying the individual as an independent contractor." (California Labor Code section 226.8). Penalties for such a violation will include:

  • $5,000 to $15,000 per violation
  • $10,000 to $25,000 per violation if a pattern of employee misclassifications is present

Employers found in violation of the California Labor Code must also provide notification to employees of the following: companies must tell employees when a violation has been found, when the company has changed its practices to rectify the violation and instruct any employee who feels he or she has been misclassified on how to contact the Labor Workforce Development Agency.

In addition, as enacted under section 2753, an individual who knowingly advises an employer to misclassify an employee may be held jointly and severally liable for the willful misclassification.

The penalties per misclassification violation can add up fast if an employer has been in the practice of regularly misclassifying employees as independent contractors. Federal and state agencies will be working to discover unlawful employers and make sure the law is enforced and unlawful companies are punished.

Employers found to be unlawfully misclassifying employees may also be in violation of the federal Fair Labor Standards Act (FLSA) and required to pay retroactive wages or back pay for the difference between what the worker earned and what the appropriately classified employee should have earned. Employees may receive back pay for the past 2 years or 3 years if the employer willfully misclassified the employee. An employer may also face additional penalties for willfully violating the FLSA.

Employee Misclassifications Hurting Workers

When employers misclassify workers they are hurting state and federal government, companies who are classifying workers properly and the workers themselves. By illegally classifying employees, companies are able to keep costs low and undercut their competitors who are classifying employees within the bounds of the law. Government also loses funds from Medicare, Social Security and income tax proceeds, according to The Orange County Register.

In addition, misclassified workers are being denied their rights to benefits such as overtime compensation, workers' compensation benefits, health insurance, unemployment insurance, appropriate wages, family and medical leave protections, as well as other wage and hour law rights. In fact, in 2011, "more than $5 million in back wages for minimum wage and overtime violations" was collected by the federal government after discovering that "employees had been misclassified as independent contractors or otherwise not treated as employees," according to a statement issued by the DOL.

As maintained by California's labor commissioner Julie Su and Nancy Leppink, deputy administrator of the U.S. Department of Labor's Wage and Hour Division, the agencies are looking at jobs where illegal worker classifications are common place, including janitorial services, construction in residential areas, agricultural workers, car wash employees, internet-related services out of homes and distribution centers, as reported by Press-Enterprise.

Employee vs. Independent Contractor

The California Labor Code presumes that workers are employees and the employer must prove that a worker is an independent contractor. When determining employee or independent contractor classification, California courts look at a variety of factors including:

  • Has the workers been hired on an at-will full-time basis or project specific for a limited period of time?
  • Who supplies the workspace and materials required to complete the job?
  • Is the work product at the core of the employers business or a distinct occupation?
  • Can the worker hire employees or subcontract work to be completed?
  • Is the worker paid the same amount at regular intervals or is compensation based on project completion and performance?

If it is determined that an employee has been misclassified as an independent contractor, the employer may face penalties and the employee may be entitled to compensation. Some employees may be reimbursed for business-related costs, missed rest breaks, missed meal breaks, "working off the clock", overtime, back pay, as well as potentially be eligible for other types of compensation.

If you feel you have been misclassified as an independent contractor or have not been paid proper wages or overtime compensation, it is important to speak to a California employment lawyer knowledgeable in wage and hour matters. An attorney can help protect your rights and pursue the compensation to which you are entitled.