The Difference Between An Independent Contractor And An Employee In California

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In the new gig economy, many companies have tried to both protect themselves and save money by categorizing workers as independent contractors instead of employees. By making this distinction, companies manage to avoid paying employee benefits and keep themselves from being held liable in certain potential lawsuits. However, a company does not have the final say over whether someone is an employee or an independent contractor, no matter how they classify a worker.

Employees and Independent Contractors Are Treated Differently By Law

When a company hires an employee, they assume certain obligations by law. For instance, they must pay certain benefits, and they must also pay time and a half for overtime. Employers must provide workers’ compensation insurance that gives benefits in the event of a job-related injury. There are minimum wage requirements and other employee protections. In addition, the legal principle is that an employer is responsible for the actions of their employees while they are on the job. Under this theory of agency, anyone who was injured by an employee can sue the company for damages.

There are no such protections for an independent contractor. They have an arms-length relationship with the company. By and large, they are considered to be “on their own.” They are self-employed, performing tasks as required.

Companies Do Not Want Workers on the Books as Employees

These days; companies are going to great lengths to classify workers as independent contractors. For example, Uber and Lyft have managed to escape many regulatory efforts to force them to treat their drivers as employees. They have successfully managed to position themselves as middlemen when customers hail rides over their platform. As a result, these companies avoid taking on any labor obligations, and they can push liability for crashes onto an insurance company and the driver themselves.

Companies gain many benefits at the expense of the worker when they categorize them as independent contractors, so many employers will try to push the envelope. There have been many lawsuits that have challenged this designation, and California has even passed legislation to govern when and how companies can call workers independent contractors.

You Can Contest What the Company Says About Employment Status

Employees may challenge their own designation as independent contractors when the company has denied them wages or benefits that they would otherwise deserve. Accident victims also can challenge the categorization when they are denied the right to sue the company based on a theory of vicarious liability in a personal injury case.

In the end, the court will decide whether a worker is an independent contractor in a wage and hour or personal injury lawsuit. The court will look at the realities of the situation, ignoring what the company chooses to call the worker because businesses may choose whatever designation suits their own purposes.

How the ABC Test Is Applied in California

California has used a test called the “ABC Test” to determine whether the company could call a worker an independent contractor. The doctrine was created by courts in the state, and it was recently codified in the landmark AB5 legislation. The ABC test looks to the following factors to determine whether a worker could be considered an independent contractor:

  • The worker is able to perform their work free of control from the hiring entity. The court will look  at both of the contract between the independent contractor and company and the actual realities of the situation. Some companies may exercise control of the manner in which the work is performed or have the ability to control how the employee performs his or her job.
  • The work is not in the usual course of business of the hiring company (for example, a store may hire a handyman as an independent contractor in order to make repairs).
  • The worker is customarily engaged in an independently established trade, occupation, or business in the same type of work as what is involved in the work performed for the hiring company.

The California Supreme Court has clarified that the ABC test applied retroactively to workers that were hired before the decision. Thus, even people who have been on the job for many years could still be considered employees if the employer fails to show that they meet the ABC test. The burden of proof is on the employer to show that they meet each element of the test. The failure to meet even one of the three elements means that the worker is an employee.

Companies like Uber and Lyft have managed to use their lobbying power to be exempt from these rules. Many other employers, recognizing their business models to be at risk, have followed suit in trying to persuade the Legislature and voters to exempt them from these rules.

Companies Can Be Held Accountable for Misclassification

In the absence of a specific exemption, you should never simply rely on the company’s classification and not try to hold them accountable for what they have done wrong. Lawsuits challenging the legal status of the worker are common, and they are becoming increasingly more so now that companies are trying to do everything that they can to save money. The rising cost of health insurance and other employee benefits has caused companies to try to push more workers off company rolls and onto their own. An experienced employment attorney can review the facts of your situation and determine whether you can file a lawsuit. If you have been injured in an accident, and the company claims that they are not liable because the person was not an employer, your lawyer could also help you challenge that argument.

Contact a Los Angeles Employment, and Personal Injury Attorney Today

The attorneys at The Arshakyan Law Firm have knowledge and experience in both personal injury and employment law, making us an ideal candidate to help you when employment status is an issue. You can speak to a lawyer when you reach out online or call us at (888) 851-5005 to schedule your free initial consultation. We are standing by and ready to work for you.