Lawsuits in California for Misclassification of an Employee as an Independent Contractor

California law allows workers who are misclassified as independent contracts (but should have been treated as W2 employees) to file a wage and hour lawsuit. Damages against the employer can include:

In California, the basic definition of "independent contractor" is a person who performs services for someone else and retains control of how the service is performed.1

If someone performing services for someone else does not meet the formal definition of an independent contractor, then they are presumed to be an "employee" for purposes of California labor law.2

This distinction is important because the protections of California wage and hour law -- including rules about overtime pay, minimum wage, and meal and rest breaks -- only apply to employees, and not to independent contractors.

Independent contractors are not covered by California's overtime and other wage/hour laws.

However, employers cannot get around California wage and hour laws by simply declaring that an employee is an independent contractor, or by making the employee sign an agreement stating that s/he is an independent contractor.

Unless the person hired meets the legal definition of independent contractor, s/he is an employee, and must receive all the protections California employment law provides to employees.3

Below, our California employment law attorneys answer the following frequently asked questions about the distinction between independent contractors and employees:

If you have further questions after reading this article, we invite you to contact us at Shouse Law Group.

1. What is the difference between an independent contractor and an employee in California employment law?

The traditional definition of an independent contractor in California labor law is someone who performs services for another, where both of the following are true:

  1. The person performing services is promised a specific payment for a specific result; and
  2. The person performing services retains control over how the task was performed.4

If the person receiving the services exercises primary control over how the task is performed--instead of just naming the desired result--then an employee-employer relationship has been formed.

Independent contractors are workers who are paid a specified amount for performing a specified task--and who control how the task is performed.

California has adopted the so-called ABC test for determining whether a worker is an independent contractor or an employee. The ABC test presumptively considers all workers to be employees. However, a worker can be classified as an independent contractor if the employer establishes:

  1. That the worker is free from the control and direction of the employer in connection with the performance of the work, both under the contract for the performance of the work and in fact;
  2. That the worker performs work that is outside the usual course of the hiring entity's business; and
  3. That the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.5

As of April 2018, the ABC test replaces California's prior “Borello” standard that included a multifactor test to determine whether someone is an independent contractor or an employee.6

Example: Juan runs an online company making and selling scented candles. He knows nothing about web page design. So he hires Hannah to design a web page for him for a set amount of money.

Juan is impressed by Hannah's work designing the page, so he also asks her to maintain it for him going forward, for a monthly fee. Hannah does all the work in her own home office and does similar work for a number of other clients.

Hannah is probably an independent contractor because she is free from the control and direction of Juan in how the work is accomplished, website design and maintenance is outside the usual course of the candle-selling business, and Hannah is engaged in independent website design, which is the same nature of work that Juan hired Hannah to perform.

BUT

Example: Hannah's web design business is growing. She finds she needs some help meeting her clients' needs. So she contracts with Pete, a recent college graduate who has some web design skills.
Hannah has Pete handle some of her easier web design jobs for her. His hours vary from week to week, and she pays him by the hour. Pete does the work in Hannah's home office. She also checks his work after it is done. They have signed an agreement stating that Pete is an independent contractor.
Pete is probably an employee under California employment law because Hannah controls his performance of the work. If Hannah cannot establish all 3 factors of the ABC test, Pete cannot be classified as an independent contractor. Thus, Hannah is required to pay him overtime under California overtime laws when he works more than a certain number of hours in a day or week, and provide him with regular meal and rest breaks.

2. What if I signed an agreement stating that I am an independent contractor?

It is common for hiring arrangement to involve an "independent contractor agreement" in which the person being hired agrees that s/he is an independent contractor and not an employee (and thus not protected by wage/hour and other laws, such as workers' compensation, that applies to California employees).

California courts will not assume you are an independent contractor just because you signed an agreement stating that you were.

But these agreements do NOT determine the nature of a hiring relationship in California.

You can be an employee even if you signed an agreement stating that you are an independent contractor. What matters is whether the nature of your work and relationship with the person hiring you indicate that it is an employment relationship.7

3. What should I do if my employer has been wrongly classifying me as an independent contractor to avoid California wage and hour laws?

If you believe that a person hiring you to perform services has been wrongly classifying you as an independent contractor, then California law provides you with the means to enforce your rights.

If you are an employee, and you are not an exempt employee under California law, then you are entitled to overtime pay and meal/rest breaks. Your employer also may not pressure or force you to "work off the clock."

This means that California employees who have been misclassified as independent contractors may bring wage and hour lawsuits against their employers to collect overtime compensation that was wrongfully denied to them--along with interest on the unpaid overtime and possibly attorney's fees.

In addition, employees wrongly classified as independent contractors who did not receive meal and rest breaks are entitled to an hour's pay at their regular rate for each break that they did not receive.

4. What damages are available if I file a wage and hour lawsuit against my employer for misclassifying me as an independent contractor in California?

The damages available in a successful California wage and hour lawsuit depend on the wage and hour law violations, including:

  • Minimum wage violations
  • Overtime violations
  • Meal or rest break violations
  • Willful misclassification as independent contractors

“Willful misclassification” of an independent contractor means knowingly and voluntarily misclassifying a worker as an independent contractor to avoid employee status under California law.8

Willful misclassification of an individual as an independent contractor carries a civil penalty of between $5,000 and $25,000 per violation. If an employer is charged this penalty, the employer is also prohibited from charging any fees or making deductions from this compensation.9

If the employer fails to pay the minimum wage or overtime because of a worker's misclassification as an independent contractor, the employee is able to collect the unpaid amounts owed, in addition to interest and reasonable attorney's fees.10

An employee may also be able to claim “liquidated damages” equal to the amount of the unpaid wages plus interest. Liquidated damages are available where the employer's actions were not due to a good faith error.11

If an employer failed to provide mandatory meal and rest breaks because the worker was misclassified as an independent contractor, the employee can sue for damages for the missed breaks. The employee can claim damages equal to one hour's pay at the regular rate for each break he or she did not receive.12

5. How long do I have to file a lawsuit against my employer in California?

The statute of limitations for most California wage and hour lawsuits is three (3) years from the date when the most recent violation has occurred.13

However, if the employee has a claim against the employer for a breach of a written employment contract, the statute of limitations is four (4) years.14

6. Can my employer fire me for reporting independent contractor misclassification in California?

An employer in California cannot retaliate against an employee for exercising their rights under California labor laws. This includes reporting misclassifying employees as independent contractors, whether intentionally or unintentionally.15

Any retaliation for filing a wage and hour claim or reporting willful misclassification of an independent contractor is against the law. Retaliation, including firing the employee, could be considered "wrongful termination."

7. What is the definition of an independent contractor in federal employment law?

Under federal law, there is no single rule or test for determining whether a worker is an employee or independent contractor under the Fair Labor Standards Act (FLSA). Instead, there are a number of factors to consider in light of the total activity or situation, including:

  1. The extent to which the services rendered are an integral part of the principal's business.
  2. The permanency of the relationship.
  3. The amount of the alleged contractor's investment in facilities and equipment.
  4. The nature and degree of control by the principal.
  5. The alleged contractor's opportunities for profit and loss.
  6. The amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent contractor.
  7. The degree of independent business organization and operation.16

If an employer has violated federal labor laws under the FLSA, the employee may be able to collect liquidated damages equal to the amount of unpaid wages and interest. This amounts to double damages.17

If you believe that a person hiring you to perform services has been wrongly classifying you as an independent contractor, then California and federal laws provide you with the means to enforce your rights.

Call us for help.

For questions about the distinction between independent contractors and employees in California or to discuss your case confidentially with one of our skilled California labor and employment attorneys, do not hesitate to contact us at Shouse Law Group.

We have local employment law offices in and around Los Angeles, San Diego, Orange County, Riverside, San Bernardino, Ventura, San Jose, Oakland, the San Francisco Bay area, and several nearby cities.

Work in Nevada? Learn about the misclassification of employees as independent contractors in Nevada.


Legal References:

  1. Labor Code 3353 LC -- Independent contractor. ("“Independent contractor” means any person who renders service for a specified recompense for a specified result, under the control of his principal as to the result of his work only and not as to the means by which such result is accomplished.")
  2. Labor Code 3357 LC -- Employee presumption. ("Any person rendering service for another, other than as an independent contractor, or unless expressly excluded herein, is presumed to be an employee.")
  3. Yellow Cab Cooperative, Inc. v. Workers' Comp. Appeals Bd. (1991) 226 Cal.App.3d 1288, 1297. ("Even in the common law setting, a formal agreement characterizing the relationship as independent contractorship “will be ignored if the parties, by their actual conduct, act like 'employer-employee.' Citations. Indeed, the attempt to conceal employment by formal documents purporting to create other relationships has led the courts to disregard such terms whenever the acts and declarations of the parties are inconsistent therewith.")
  4. Labor Code 3353 LC -- Independent contractor, endnote 1 above.
  5. Dynamex Operations West, Inc. v. The Superior Court of Los Angeles County, No. S222732 (Cal. Sup. Ct. Apr. 30, 2018).(“Under this test, a worker is properly considered an independent contractor to whom a wage order does not apply only if the hiring entity establishes: (A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact; (B) that the worker performs work that is outside the usual course of the hiring entity's business; and (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.”)
  6. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341, 350–51. ("However, the courts have long recognized that the “control” test, applied rigidly and in isolation, is often of little use in evaluating the infinite variety of service arrangements. While conceding that the right to control work details is the “most important” or “most significant” consideration, the authorities also endorse several “secondary” indicia of the nature of a service relationship. Thus, we have noted that “strong evidence in support of an employment relationship is the right to discharge at will, without cause. Citations.” *351 ( Tieberg, supra, 2 Cal.3d at p. 949, quoting Empire Star Mines, supra, 28 Cal.2d at p. 43.) Additional factors have been derived principally from the Restatement Second of Agency. These include (a) whether the one performing services is engaged in a distinct occupation or business; (b) the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision; (c) the skill required in the particular occupation; (d) whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work; (e) the length of time for which the services are to be performed; (f) the method of payment, whether by the time or by the job; (g) whether or not the work is a part of the regular business of the principal; and (h) whether or not the parties believe they are creating the relationship of employer-employee. ( Tieberg, supra, at p. 949; Empire Star Mines, supra, 28 Cal.2d at pp. 43-44; see Rest.2d Agency, § 220.) (4a) “Generally, ... the individual factors cannot be applied mechanically as separate tests; they are intertwined and their weight depends often on particular combinations.” (Germann, supra, 123 Cal.App.3d at p. 783.)")
  7. Yellow Cab Cooperative, Inc. v. Workers' Comp. Appeals Bd., endnote 3 above.
  8. Labor Code 226.8(i)(4).
  9. Labor Code 226.8 LC (“(b) If the Labor and Workforce Development Agency or a court issues a determination that a person or employer has engaged in any of the enumerated violations of subdivision (a), the person or employer shall be subject to a civil penalty of not less than five thousand dollars ($5,000) and not more than fifteen thousand dollars ($15,000) for each violation, in addition to any other penalties or fines permitted by law. (c) If the Labor and Workforce Development Agency or a court issues a determination that a person or employer has engaged in any of the enumerated violations of subdivision (a) and the person or employer has engaged in or is engaging in a pattern or practice of these violations, the person or employer shall be subject to a civil penalty of not less than ten thousand dollars ($10,000) and not more than twenty-five thousand dollars ($25,000) for each violation, in addition to any other penalties or fines permitted by law.”)
  10. Labor Code 1194 LC -- Action to recover minimum wage, overtime compensation, interest, attorney's fees, and costs by employee. ("(a) Notwithstanding any agreement to work for a lesser wage, any employee receiving less than the legal minimum wage or the legal overtime compensation applicable to the employee is entitled to recover in a civil action the unpaid balance of the full amount of this minimum wage or overtime compensation, including interest thereon, reasonable attorney's fees, and costs of suit. (b) The amendments made to this section by Chapter 825 of the Statutes of 1991 shall apply only to civil actions commenced on or after January 1, 1992.")
  11. Labor Code 1194.2 -- Liquidated damages in wage/hour suits. ("(a) In any action under Section 98, 1193.6, 1194, or 1197.1 to recover wages because of the payment of a wage less than the minimum wage fixed by an order of the commission or by statute, an employee shall be entitled to recover liquidated damages in an amount equal to the wages unlawfully unpaid and interest thereon. Nothing in this subdivision shall be construed to authorize the recovery of liquidated damages for failure to pay overtime compensation. A suit may be filed for liquidated damages at any time before the expiration of the statute of limitations on an action for wages from which the liquidated damages arise. (b) Notwithstanding subdivision (a), if the employer demonstrates to the satisfaction of the court or the Labor Commissioner that the act or omission giving rise to the action was in good faith and that the employer had reasonable grounds for believing that the act or omission was not a violation of any provision of the Labor Code relating to minimum wage, or an order of the commission, the court or the Labor Commissioner may, as a matter of discretion, refuse to award liquidated damages or award any amount of liquidated damages not exceeding the amount specified in subdivision (a). (c) This section applies only to civil actions commenced on or after January 1, 1992.")
  12. 8 California Code of Regulations ("C.C.R.") 11040. ("11 . . . (B) If an employer fails to provide an employee a meal period in accordance with the applicable provisions of this order, the employer shall pay the employee one (1) hour of pay at the employee's regular rate of compensation for each workday that the meal period is not provided. . . . 12 . . . (B) If an employer fails to provide an employee a rest period in accordance with the applicable provisions of this order, the employer shall pay the employee one (1) hour of pay at the employee's regular rate of compensation for each workday that the rest period is not provided.")
  13. Code of Civil Procedure 338 CCP -- Statutes of limitations for wage/hour lawsuits. ("Within three years: (a) An action upon a liability created by statute, other than a penalty or forfeiture.")
  14. Code of Civil Procedure 337 CCP -- Statutes of limitations for breach of contract lawsuits. ("Within four years: 1. An action upon any contract, obligation or liability founded upon an instrument in writing, except as provided in Section 336a of this code; provided, that the time within which any action for a money judgment for the balance due upon an obligation for the payment of which a deed of trust or mortgage with power of sale upon real property or any interest therein was given as security, following the exercise of the power of sale in such deed of trust or mortgage, may be brought shall not extend beyond three months after the time of sale under such deed of trust or mortgage.")
  15. Labor Code 98.6 LC -- Discharge or discrimination, retaliation, or adverse action against employee or applicant for conduct delineated in this chapter or because employee or applicant has filed complaint or claim, instituted or caused to be instituted any proceeding under or relating to his or her rights or testified relating to the same on behalf of that person or another whistleblower protection for reporting wage/hour or labor law violations.
  16. U.S. Department of Labor -- Wage and Hour Division (WHD) -- Fact Sheet 13: Employment Relationship Under the Fair Labor Standards Act (FLSA).
  17. 29 U.S.C. 216(b) -- Damages; right of action; attorney's fees and costs; termination of right of action. (“Any employer who violates the provisions of section 206 or section 207 of this title shall be liable to the employee or employees affected in the amount of their unpaid minimum wages, or their unpaid overtime compensation, as the case may be, and in an additional equal amount as liquidated damages.”)

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