California Independent Contractor Law (2023)
California Employers May Face Lawsuits and Substantial Penalties for Misclassifying Workers
Your employer says you’re an independent contractor, but are they right?
Many employers misclassify workers to avoid giving them California overtime pay and minimum wage. But their workers can file a lawsuit for misclassification and can recover penalties as high as $25,000 per worker.
Below we discuss the legal test for whether someone is improperly classified as an “independent contractor” under California independent contractor misclassification law.
California Independent Contractor Law
|(1) California Independent Contractor Test|
|(2) Misclassification Damages & Penalties|
|(3) How to Sue for Misclassification|
Misclassified as an Independent Contractor in California?
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California Independent Contractor Misclassification Test (2023)
Different states use different tests for determining whether someone is misclassified as an independent contractor under their state’s labor code. In 2018, the California Supreme Court adopted the “ABC test” for determining whether someone is properly classified as an independent contractor, and the California legislature adopted the same test, effective January 1, 2020. The “ABC test” is the most favorable test for independent contractors trying to prove that they are entitled to “employee” status.
In 2019, the California legislature passed Assembly Bill 5 (AB5) which codified the California Supreme Court decision. Under this law, which went into effect on January 1, 2020, a California court will presume that a worker should be an employee, unless the employer can prove three things (the “ABC“s):
(A) The Worker Is Free From The Company’s Control
The company must prove that the worker is free from its control in performing the work.
If the company sets your work hours, requires you to show up at a particular location every day, requires use of company equipment or uniforms, has training sessions and manuals, or requires you to report to a “manager,” the company may be exercising so much control over the worker that he or she must be classified as an “employee.”
(B) The Job Falls Outside the Company’s “Usual Course of Business”
To validly classify someone as an independent contractor under California law, the company must prove that the worker’s job functions fall outside the company’s core business.
For example, a company that primarily does delivery or transportation must classify its drivers as “employees.” They are part of the company’s core business. In contrast, a delivery company may be allowed to classify the security guards at its headquarters as “independent contractors.”
Example 1 | John is an accountant who is retained each year to do taxes for a steel manufacturer. John is validly classified as an independent contractor.
Example 2 | Terry works as an accountant for an accounting firm. Terry is misclassified as an independent contractor under California law.
Example 3 | Maurice works as a California truck driver for a trucking company, but is classified as an independent contractor. He is misclassified because the California trucking company’s primary line of business is trucking.
(C) The Worker Typically Operates a Separate Business From the Company
Under the third part of California’s independent-contractor test, an employer must prove that the worker is “customarily engaged” in a business, occupation, or trade that is independent from the company.
Someone who only works for a single company, ever, usually must be classified as an “employee.” A legitimate independent contractor, under the ABC test, is someone who is in-business for themselves.
Reminder: Company Must Prove All Three Elements
If the employer fails to prove any of the three “ABC”s, the worker must be classified as an “employee” rather than an “independent contractor.” Or, stated another way, an “independent contractor” is misclassified if the company fails to prove all three of the above requirements.
Chart: California’s “ABC Test” for Independent-Contractor Misclassification
|Company must prove that:|
|(A)||The worker is free from the company’s control in how they perform the work.|
|(B)||The type of work performed falls outside the company’s usual business.|
|(C)||The worker is in-business for themselves, not just employed by the company.|
Damages and Penalties for Independent Contractor Misclassification in California
If you’ve been misclassified as an independent contractor, you may be entitled to damages and labor code penalties, which can quickly add up to large amounts of money.
Aggrieved workers can file a lawsuit, under California’s Private Attorney General Act, to recover a share of the total labor code penalties that the state of California is entitled to. In the case of misclassification, the California labor commission is entitled to between $5,000 and $25,000 for each worker that the company intentionally misclassified.
As part of an individual or class action, misclassified workers are entitled to recover all the money they should have been paid if they had been classified correctly, including reimbursement of business expenses and payment for all hours worked. Misclassified workers are entitled to earn at least California minimum wage ($14) for each hour worked, and overtime rates for hours worked above 40 per week.
Example 1: Luiz is a security alarm technician who is classified as an independent contractor. The company pays him a rate of $40 per installation (regardless of how long it takes). Luiz works a job that turns out to be surprisingly complex, and it takes 8 hours instead of the typical 2 hours. Luiz gets $40 for the whole job, a wage of only $5 per hour. If a court finds that Luiz was misclassified as an independent contractor, he will be entitled to California minimum wage for the 8-hour installation, which is $112, more than double what the company originally paid him ($40).
Example 2: Meredith is a hair stylist working as an independent contractor for a salon. She earns $20 for every hair cut she performs. A man walks in with knotted dreadlocks that haven’t been cut or groomed in 4 years. It takes Meredith 3 hours to finish cutting his hair. If she’s misclassified under California law, she’s entitled to earn at least $14 per hour for that haircut, or $42 total.
How to Sue Your California Employer for Misclassification as an Independent Contractor in 2023
If you think you were misclassified and are entitled to a recovery, what are your options for suing? You could retain an attorney and file a class action or a private attorney general lawsuit, or both. You could represent yourself in small claims court, but filing a small claims case in California will limit the amount you can recover to $10,000. If your contract with the company has an arbitration clause, you could represent yourself or retain an attorney to represent you in arbitration. Generally, arbitration awards are significantly higher for parties represented by an attorney, compared to parties that represent themselves.
Our attorneys often represent workers in class actions, private attorney general lawsuits, and in arbitration. Currently we are representing individuals for misclassification as an independent contractor in our Lyft lawsuits and DoorDash lawsuits. If you believe you have been misclassified as an independent contractor, contact us. We may be able to help you gain recovery.
Assembly Bill 5 (AB5) and Worker's Rights
On September 18, 2019, California governor Gavin Newson signed into law a new piece of workers’ rights legislation- Assembly Bill 5 (AB5). The new law, which went into effect on January 1, 2020, essentially codified the California Supreme Court decision to adopt the “ABC test” for determining whether someone is a properly classified independent contractor.
Under the “ABC test,” which provides stricter guidelines and makes it harder to classify workers as “independent contractors,” millions of independent contractors may be reclassified as employees. This means that these workers must be given the fundamental rights of employees, including guaranteed minimum wage, mileage reimbursement, and paid sick leave.
AB5 will most likely effect workers for many app-based companies, such as Uber, Lyft, and DoorDash, who have been formally classified as independent contractors. For example, a DoorDash driver would now be entitled to the same minimum wage and mileage reimbursement as food delivery employees for Domino’s or Papa John’s.
Does AB5 Apply to All California Workers?
While AB5 applies to most California workers, there are some workers who are exempt from the law. Most notably, the California Trucking Association filed a lawsuit in November, arguing that AB5 should not apply to independent truck drivers. In January 2020, a federal judge granted a preliminary injunction to the California Trucking Association which temporarily prevented the law from applying to independent truck drivers and motor carriers.
Contact an experienced employment lawyer today to learn how AB5 effects your job and classification.
Get Damages and Up to $25,000 Per Violation under California Misclassification Law
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Largest Penalties Available = under California Independent Contractor Misclassification Law
The penalties for independent-contractor misclassification in California are the largest that the labor code has to offer. As an aggrieved current or former employee, you may be able to recover these penalties on behalf of yourself and your co-workers. Contact us for a free consultation.