What is the Employee Misclassification?
Employee misclassification is the practice of labeling an employee’s status as independent contractors. This allows employers to avoid paying unemployment and other taxes on workers. In addition, by misclassifying an employee, it’s denied the access to protection and benefits, such as minimun wage, overtime compensation, unemployment insurance, family and medical leave, and more.
Employers in California are expected to pay for workers’ comp insurance, employment taxes, and unemployment insurance, and all of this can be avoided when they classify workers as independent contractors. The state of California determines whether you’re an independent contractor or employee through two main tests: the ABC test and the Borello test.
What is the ABC test?
Under the ABC test, a worker is considered an employee and not an independent contractor, unless the hiring entity satisfies all three of the following conditions:
- The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;
- The worker performs work that is outside the usual course of the hiring entity’s business; and
- The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
What is AB5?
In 2019, the legislature passed AB 5 to add Section 2750.3 to the Labor Code, adopting and expanding the common law “ABC Test” to define “employee” not just for purposes of the Wage Orders, but also for purposes of the Labor Code and the Unemployment Insurance Code.
Under the AB 5-enhanced version of the ABC Test, a worker is presumed to be an employee, unless the hiring entity can establish that:
- The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
- The person performs work that is outside the usual course of the hiring entity’s business.
- The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
A worker cannot be classified as an independent contractor under the ABC Test unless all three factors are met, or unless one of the exemptions established by AB 5 is satisfied.
It’s important to know your rights under the California Labor Code, as well as the California and Family Medical Rights Act and Fair Employment and Housing Act. If you’re an employee, you’re entitled to basic protections such as:
- Meal and rest breaks.
- Accommodations for disabilities.
- Protected maternity and paternity leave.
- Paid sick leave.
- Reimbursement for expenses incurred on the job.
- Freedom from discrimination based on gender, age, race, ethnicity, and more.
- Overtime pay.
- State or local minimum wage.
Don’t Lose Your Rights
Employees are disadvantaged when they are misclassified; and even though it’s possible for employers to misclassify their employees because they’re unfamiliar with the way the law works, many intentionally do it to avoid giving their workers benefits.
Employees are left with little recourse if they are injured on the job, as they have no worker’s compensation coverage- and are not protected by occupational safety and health rules which cover only employees. Those same workers have no access to the protection of the:
- Americans with Disabilities Act;
- Age Discrimination in Employment Act and;
- Family Medical Leave Act among other laws.
It is illegal for an employer to require an employee to pay any portion of the business’ workers’ compensation premiums. If unlawful deductions are discovered, civil penalties are assessed by the program in an amount equal to the amount unlawfully deducted. If other unlawful employment practices are discovered, the program takes appropriate action including referrals to other state agencies.
Employers that comply with the law are disadvantaged if they lose business because their competitors misclassify employees. Non-compliant employers often:
- Have lower labor costs. This uneven playing field has a financial impact estimated to be in the tens of millions of dollars.
- Fail to keep records required by law.
- Avoid documenting a worker’s right to work legally in the U.S.
File your employment misclassification claim today. Count on an experienced lawyer from Workers’ Advocate Law Group who has extensive experience in fighting for their clients’ employment rights. You can contact our firm online to schedule your free consultation in English or Spanish today. Our team will be more than happy to assist you accordingly.