Employers Face Harsh Consequences For Willful Misclassification Of Employees As Independent Contractors In California

Employers are often surprised to learn that they are not protected by a contract wherein an individual acknowledges and agrees that they an independent contractor rather than an employee. The courts have determined that economic realities, not contract language, determine whether an individual is an employee or an independent contractor. Moreover, it is a fundamental public policy in California that employee status is presumed once the employee provides evidence that s/he performed services for the employer.  The burden then shifts to the employer to prove that the person was actually an independent contractor.  This, of course, can be very difficult to overcome.

As of January 1, 2012, California amended the law regarding willful misclassification of employees as independent contractors, making the consequences much harsher.  “Willful misclassification means avoiding employee status for an individual by knowingly and voluntarily misclassifying that individual as an independent contractor.”  Labor Code §226.8.

So what’s the worst that could happen?  An employer found to have engaged in a pattern and practice of willfully misclassifying employees as independent contractors can be fined $25,000 per employee and ordered to prominently state on its website that it has “committed a serious violation of the law by engaging in the willful misclassification of employees”.  Other consequences may include: unpaid overtime and other wages, meal period penalties, rest period penalties, other compensation and benefits, employment taxes, plaintiff’s attorneys’ fees (in addition to the defendant company’s attorneys’ fees), costs of suit, and an injunction.

There is no bright line rule about whether any particular worker qualifies as an independent contractor or an employee.  Rather, the economic realities test is applied, and a number of factors are taken into consideration.  An employer should consult with an experienced employment law attorney to help determine the proper classification.  

© Alexandra M. Steinberg 2016 All rights reserved.