Misclassification as Independent Contractor
THE STATUTE
Pursuant to California Labor Code Section 226.8, it is unlawful for an employer to willfully misclassify an employee as an independent contractor. “Willful misclassification” is defined as “voluntarily and knowingly misclassifying that individual as an independent contractor.”
INCENTIVE TO MISCLASSIFY
When employers misclassify their workers as independent contractors, they unlawfully deprive them of employment protections otherwise afforded them under California’s wage orders and the California Labor Code. Many companies misclassify their workers to cut down on labor costs and to push off business expenses onto the workers. The misclassified individuals are not compensated with health insurance benefits, workman’s compensation, or unemployment insurance. Moreover, they must pay self-employment taxes. By the time these expenses are subtracted from the wages a worker earns and are averaged over the number of hours they spend working, take-home pay may be less than minimum wage.
TEST RE MISCLASSIFICATION
There is an increasing trend among companies (particularly trucking companies) to misclassify their employee as an independent contractor when they should be treated as employees. According to the California Supreme Court in Dynamex Operations West, Inc. v. Los Angeles County Superior Court, 4 Cal.5th 903 (2018), transportation workers in California are legally presumed to be employees.
A worker is considered misclassified as an independent contractor under California law unless the hiring company can show all the following (a difficult task):
- the worker is free from the control of the hiring entity;
- the worker’s job falls outside the hiring entity’s usual course of business (i.e., in the context of truckers, the company is not a “trucking company”); and
- the worker operates a business that is independent of the hiring entity (such as by working with other companies).
This test – commonly referred to as the “ABC Test” – is conjunctive, not disjunctive. It is unlikely that a Company (especially a trucking company) can prove either of these elements, much less all of them.
Even assuming the ABC Test under Dynamex were not to apply, under the common-law test for employee as adopted in S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal. 3d 341 (1989), a Company is typically unable be able to establish that its workers are in fact independent contractor. The Borello test evaluated multiple factors to determine whether an individual was an independent contractor. Not all the factors had to be met to establish independent contractor status. The principal factor of the Borello test was whether the “person to whom service is rendered has the right to control the manner and means of accomplishing the result desired.” The test also included nine additional factors:
- right to discharge at will, without cause;
- whether the one performing the services is engaged in a distinct occupation or business;
- 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;
- the skill required in the particular occupation;
- whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work;
- the length of time for which the services are to be performed;
- the method of payment, whether by the time or by the job;
- whether or not the work is part of the regular business of the principal; and
- whether or not the parties believe they are creating a relationship of employer-employee.
In the context of trucking, it is worth noting that the Department of Labor Standards Enforcement, in an overwhelming percentage of cases, has found that employees who work as truck drivers are misclassified as independent contractors.
