Employee Versus Independent Contractor Lawyer

Does the business you work for consider you an Independent Contractor as opposed to an employee? If so, the business you work for may be depriving you of benefits you are owed under California and federal law. These benefits include:

• Protection under retaliation laws,
• Reimbursement for work expenses,
• Entitlement to:
  • Overtime,
  • Minimum wage,
  • Rest breaks, and meal periods,
  • Workers’ compensation benefits,
  • Unemployment insurance benefits, and
  • State disability benefits.

Moreover, a business must pay a matching amount to social security and Medicare taxes withheld from an employee’s wages, while independent contractors pay more social security and Medicare taxes based on the same amount of income because they pay an amount equal to both the employee and employer contributions. A business may improperly classify an employee as an independent contractor to avoid paying these benefits. Historically, some industry standards or customs have automatically treated certain workers as independent contractors who in fact should be treated as employees. Fortunately, the California Supreme Court and the California Legislature have created limits on when a business may classify a worker as an independent contractor, and, over time, these institutions have provided clarity as to who is an employee and who is an independent contractor.

Under the ABC test, first adopted by the California Supreme Court in Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal.5th 903, and later codified in California Labor Code sections 2775-2787, 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;
• 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.

In some situations, a court may determine that the ABC test cannot apply. In addition, California Labor Code section 2775 excludes or limits the use of the ABC test for certain occupations. In those situations, the basic test for determining whether a worker is an employee versus an independent contractor is whether the business has the right to control the manner and means by which the work is performed. When the business has the "right of control" over the worker, the worker will be an employee even if the business never actually exercises control over the worker. If the business does not have the right of control over the worker, the worker will generally be an independent contractor.

If it is not readily apparent whether the business has the "right of control" over the worker, then the multiple secondary factors enunciated in S.G. Borello & Sons, Inc. v. Dept. of Industrial Relations (1989) 48 Cal.3d 341 must be considered to determine the issue.

These secondary factors include:

• Whether the business supervises or instructs the worker while the worker is working. If the worker is required to follow specific company procedures in the performance of his or her duties, then the worker is normally an employee.
• Whether the company can fire the worker or the worker can quit at any time. Independent contractors are generally hired to perform specific jobs. Normally, the business cannot fire the worker and the worker cannot quit until the job is complete, because doing so would violate the terms of the written contract or oral agreement between the parties.
• Whether the work being performed by the worker is a necessary part of the business’s usual course of business by which it generates revenue. For example, a barista at a coffee establishment who makes coffee beverages is an employee. The coffee establishment could not operate fully without a barista making coffee beverages for customers. When that same coffee establishment hires an outside technician to repair overhead lighting, that worker is likely an independent contractor because the service he or she is providing is not part of the usual course of business by which the business generates revenue.
• Whether the work being performed by the worker is the same or similar to work performed by workers the business has already designated as employees. For example, if a worker is brought on by the business in response to a temporary situation such as a short-term increase in workload or to cover an employee who is on vacation, that worker is likely an employee.
• Whether the business furnishes the tools, equipment, or supplies the worker uses to perform the work required by the business. Independent contractors normally furnish the tools, equipment, or supplies necessary to perform the work; employees do not.
• Whether the business provides the worker with training. If the business requires training to perform the work tasks, then the worker is likely an employee.
• Whether the worker is paid periodically. Generally, independent contractors are paid upon competition of the task or project, while employees are paid periodically regardless of whether they have completed a particular task or project.

Both the ABC test and the Borello test assume the worker is an employee and the business must prove the worker is an independent contractor. What distinguishes the two is that the ABC test is designed to make it easier for both workers and businesses to determine in advance of any work being performed whether the worker is employee or an independent contractor.

A worker may be considered an employee under California law and thus must be treated as an employee even if under federal law the worker would be considered an independent contractor. See California Trucking Ass'n v. Bonta (9th Cir. 2021) No. 20-55106.

Certain gig workers are considered independent contractors regardless of whether they would be considered employees under the ABC test or the Borello test. California Business and Professions Code sections 7448 through 7467; California Revenue and Taxation Code 17037.

If a worker is an employee, the business that employs the worker must report the worker’s earnings to the Employment Development Department (EDD) and pay employment taxes on those earnings.

If a worker is an independent contractor and the business pays the worker over a certain minimum amount, the business must file a Form 1099-MISC with the Internal Revenue Service. If a worker is an independent contractor and the business pays the worker over a certain minimum amount, the business must also file a Form DE 542 (Report of Independent Contractor(s)) with the EDD.

There are separate standards for determining whether a worker is an employee rather than volunteer or intern. These standards are discussed in the Division of Labor Standards Enforcement Policy and Interpretations Manual and in certain Division of Labor Standards Enforcement opinion letters.

If you believe the business you work for has misclassified you as an independent contractor or has otherwise violated your rights, call the experienced attorneys at Kokozian Law Firm, APC or Contact us via our online form.