An employee misclassification lawsuit is a legal action seeking compensation because your employment status does not reflect your actual role at work.
Four things to know about these claims are:
- you can be misclassified in different ways,
- you can recover unpaid wages as well as benefits,
- they are especially common in the gig industry, and
- your employment contract does not control your status.
1. You can be misclassified in different ways
There is a misconception that the only way that you can be misclassified is as an independent contractor. While independent contractor misclassification is likely the most common scenario, you can also be misclassified as an exempt employee.
Each type of misclassification comes with its own set of issues.
Independent contractor misclassification
An independent contractor misclassification lawsuit claims that you are being treated as an independent contractor when you are actually an employee. Independent contractors have control over how they work. Employees, however, benefit from many state labor laws.
Different state laws use different definitions of what it means to be an “independent contractor.” Many, including California employment law, use the “ABC test.” Under this test, you are presumed to be an employee. Independent contractors are those who:
- are free from the employer’s control and direction with regard to the performance of the work, both under the contract and in fact,
- perform work that is outside the usual course of the employer’s business, and
- are customarily engaged in an independently established trade, occupation, or business of the same nature as the work that they are performing for the employer.1
Broadly speaking, an independent contractor is someone who retains control over how they work. The person who hires an independent contractor only gets to control the work product, or the results of the independent contractor’s work.2 These contractors are paid using a 1099 Form.
On the other hand, employers can control how their employees work. However, in order to get that control over their workers, employers have to comply with their state’s labor laws, the federal Fair Labor Standards Act (FLSA), and pay their workers with a W2 Form. Those laws entitle the worker to:
- a minimum wage,
- overtime pay,
- meal and rest breaks,
- workers’ compensation coverage,
- unemployment insurance,
- legal protections against wrongful termination for things such as whistleblower activities,
- sick leave,
- family and medical leave, and
- other employment benefits, like reimbursement for an employee’s business expenses and employer-provided healthcare.
There are also other complications that come with misclassifying W2 employees as 1099 contractors, including:
- IRS tax withholding obligations, and
- who pays the employer’s share of Medicare and Social Security taxes.
This makes it potentially lucrative for employers to classify their workers as independent contractors, but then control them like employees. By misclassifying workers, employers get the benefits of having employees without many of the costs.
However, independent contractor misclassification is not the only way that you can be misclassified.
Exempt employee misclassification
You can also be misclassified as an exempt employee, rather than as a non-exempt one.
An exempt worker is one who falls within a set of exemptions from state wage and hour laws. The specifics of each one varies by state, though there are usually the following exemptions:
- white-collar exemption, which includes the:
- executive exemption,
- administrative exemption, and a
- professional exemption;
- computer professional exemption,
- doctors and surgeons,
- public employees, and
- outside salespeople.
If you do not fall within one of these exemptions, you are a non-exempt worker. As their name implies, non-exempt workers are not exempted from the protections of your state’s wage and hour laws. As a non-exempt worker, you are entitled to:
- the applicable minimum hourly wage,
- overtime pay, and
- rest and meal breaks.
Misclassifying non-exempt workers as exempt employees is common. Employers often do so in order to avoid paying overtime wages for extra hours worked.
See our related article, What does “full time exempt” mean? A labor lawyer explains.
2. You can recover unpaid wages and benefits in a worker misclassification lawsuit
If you were misclassified as an independent contractor or as an exempt worker, you can file a wage and hour lawsuit. Depending on the type of misclassification at issue, these lawsuits can recover substantial damages.
No matter how you were misclassified, you can be entitled to:
- any unpaid wages necessary to bring your compensation up to the minimum wage,
- unpaid overtime wages,
- payments for missed meal or rest breaks,
- interest on any unpaid wages, and
- attorneys’ fees.
If you were misclassified as an exempt worker, federal law entitles you to liquidated damages, or double damages. You can recover the full amount of your unpaid wages, plus that same amount in liquidated damages.3
If you were deliberately misclassified as an independent contractor, some states also impose a civil penalty on your employer. Under California law, for example, the willful misclassification of a worker as an independent contractor carries between $5,000 and $25,000 in civil penalties per violation.4
3. Gig workers, such as Lyft or Uber drivers, are frequently misclassified
Among the most commonly misclassified employees are workers in the gig economy, particularly for ridesharing companies like:
- Uber, and
These ridesharing companies insist that they are technology companies. They argue that they are only responsible for making the smartphone app that hails a ride. They claim that this means that the people providing these rides are independent contractors.
The idea that ridesharing drivers are independent contractors is fundamental to the business model that ridesharing companies use. By classifying drivers as independent contractors, ridesharing companies save costs by:
- not having to pay overtime or minimum wages,
- avoiding liability for ridesharing car accidents, and
- dodging liability for sexual assaults and other crimes committed by the drivers.
Because gig workers are so frequently classified as independent contractors, while also being controlled like employees, the U.S. Department of Labor has proposed rules to regulate the practice.5
4. Your employment contract is not dispositive
Many workers or freelancers who have been misclassified have independent contractor agreements or employment contracts that tell them what their employment relationship is. When questioned about misclassification, employers frequently point to this provision in the contract. They often argue that it is dispositive or that you agreed to this particular working relationship. The employment contract, however, does not determine your employment status. Your state’s employment law does.
If you are classified as an independent contractor but do not meet the tests that define that status, then you are an employee.
If you are classified as exempt but do not satisfy the applicable requirements for an exemption, then you are not exempt.
The best way to determine whether you have been misclassified or not is to get the legal advice of an employment attorney from a reputable law firm. Chances are that, if you have been misclassified, other workers like you have been as well. This can lead to a class action lawsuit.
- Dynamex Operations West, Inc. v. The Superior Court of Los Angeles County, 4 Cal.5th 903 (2018) (in which the California Supreme Court overturned the test for independent contractors that had been created by S. G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal.3d 341 (1989).)
- See e.g., California Labor Code 3353 LAB.
- 29 USC 216(b).
- California Labor Code 226.8 LAB.
- Employee or Independent Contractor Classification Under the Fair Labor Standards Act, 87 Fed. Reg. 62218 (proposed Oct. 13, 2022).