With the recent market, there have been a lot of questions regarding whether the employee should be classified as an independent contractor or an employee. While misclassification was more common among truck drivers, hairstylists, nail technicians, construction workers-we have now been seeing it more and more within all types of employment. Employers would generally prefer to classify an employee as an independent contractor in order to avoid paying certain employee benefits and also shield themselves from liability. Unfortunately, when a worker is misclassified, they end up in a precarious financial situation because of the company’s dubious legal fictions that prevent them from receiving the benefits and protections provided to employees. Courts have routinely been called upon to decide these disputes in wage and hour lawsuits and workers’ compensation claims.
The Company’s Classification Does Not Control
It does not matter what the employer calls the worker. If the judge decides that the worker is really an employee, the employer will need to change their classification. The court will use the “ABC test” to decide the matter. As the name indicates, this is a three-factor test that judges use. The new AB5 law governing independent contractors requires that judges use this exact test.
The ABC test comes from a California Supreme Court decision in the case of Dynamex Operations West, Inc. v. Superior Court. In this case, the court tried to deal with a growing trend of companies classifying workers as independent contractors in the gig economy. Companies like Uber benefit from drivers’ services, taking a cut of their earnings while keeping them from receiving benefits.
In order for a worker to be an independent contractor, each of the three prongs of the ABC test must be met. If one of the three is not met, then the worker is an employee, and certain wage protections apply.
The Worker Must Be Free from Control
The first part of the ABC test looks at whether the employer has control over the workers and can direct their performance of duties. Here, a court would look at both the worker’s contract and the actual practice of their job. The court would look at the usual type of control that the employer would exercise and compare it to the employee’s situation.
Workers who have the freedom to do the work when and how they want could be considered independent contractors. When the workers do uniform work according to the exact specifications provided by the company, they are more likely to be employees. This is the first part of the test. If the court finds that there is control, this will end the inquiry.
Is the Work in the Company’s Customary Business?
The next part of the test gets a little more complicated. The court would look at whether the worker performs duties that are in the company’s normal course of business. For example, if Uber is trying to classify its drivers as independent contractors, that would not survive at court because Uber is engaged in the business of providing transportation.
An example of a worker who could pass this test is a maintenance provider doing repairs at a retail store. The business is selling goods to the general public. Maintenance is not the usual business of the store. Instead, the worker is performing tasks that support the business. However, if a store hires workers for their shop floor during the holiday season, they could not be independent contractors because that is the store’s normal business.
Does the Worker Customarily Engage in this Work?
The final part of the ABC test requires that the “worker be customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the company.” This means that the worker regularly provides these services to clients. For example, a maintenance provider could act as a handyman for several businesses in the area and do their own ongoing work in this area. This work must be the same kind that they usually do for others. This does not require the worker to have an actual business, such as an LLC. They must have the capability to provide this service for others.
As you can see, the ABC test may be unpredictable in how it is applied. For example, someone who is a freelance writer may be considered an employee in one context and an independent contractor in another. It all depends on what the business that they are working for does. However, companies that fail to classify their employees the right way can face serious consequences and could be ordered to pay an employee far more. They may even face penalties from the IRS.
If you are an employee who has been misclassified, the law allows you to file a lawsuit to get the compensation that you deserve. There have been a number of large lawsuits in recent years that have resulted in settlements that paid workers more. We expect this number to increase even further, especially as the “gig economy” pads companies profits at the expense of people who do their work.
AB5 is changing the face of many industries, in which companies misused the independent contractor designation to cut their own costs. This is especially true in the transportation field, where companies like Uber and J.B. Hunt have seen lawsuits from workers who believe that they were underpaid.
Your Legal Rights for Misclassification
You can file the following lawsuits:
- A wage and hour claim under federal law
- A claim in California state courts under the new AB5 law
Compensation for Misclassification of Employees
If you win your case or reach a settlement agreement, you may be entitled to the following compensation from the company:
- Minimum wages
- Certain employee benefits
- Rest and lunch breaks
- Compensation for overtime
- Reimbursement of expenses
Call a Southern California Employment Attorney
The Arshakyan Law Firm helps workers stand up to the companies that take advantage of them by refusing to pay them what they deserve under the law. We can file a lawsuit on your behalf, so you can have your day in court or start the process of negotiating a settlement. Big companies depend on your feeling powerless to boost their own profits at your expense. We are here to stand up for you. Contact us online or call us today at (888) 851-5005 to schedule your free case evaluation.