With respect to employees, companies are required to pay a portion of the employee’s taxes through withholding of wages. In addition, companies must provide worker’s compensation insurance, overtime pay, meal breaks, detailed payroll records and more. Bottom line—it’s much cheaper for companies to treat workers as independent contractors than as employees. Accordingly, lawsuits for “misclassification” are very valuable because the difference between an employee and an independent contractor is so great. When a worker sues and convinces the Judge or Jury that he should have the rights of an employee, many other claims are virtually certain to also be successful because the other claim is automatically triggered. These are called “derivative claims” because the other claim derives from the primary misclassification claim.
For instance, companies in California are required to maintain timekeeping records of, among other things, when employees were working and when they take meal periods. This requirement does not apply to independent contractors; thus, companies generally do not keep timekeeping records for independent contractors. As a result, if a worker prevails in his argument that he was misclassified as an independent contractor that he means the employee should have been treated like an employee whose time working is recorded. Such an employee will likely also prevail in a claim about failure to keep timekeeping records because the company probably does not have such records for the periods the company treated the worker as an independent contractor.
Many other claims and penalties are triggered immediately when the judge or jury determines that misclassification has occurred. Often a finding of misclassification as an independent contractor triggers penalties for failing to provide meal breaks, failing to provide rest breaks, failing to provide compliant wage statements, and failing to pay final wages on time if the worker no longer performs services for the company.
California Labor Code § 226.8(a)(1) states, in relevant part, that, “It is unlawful for any person or employer to willfully misclassify an individual as an independent contractor.” California Labor Code § 226.8(i)(4) states, in relevant part, that “‘Willful misclassification’ means avoiding employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor.”
California Labor Code § 226.8(b) states, in relevant part, that, “If a person or employer has willfully misclassified an individual as an independent contractor, the person or employer shall be subject to a civil penalty of not less than five thousand dollars ($5,000) and not more than fifteen thousand dollars ($15,000) for each violation, in addition to any other penalties or fines permitted by law.”
California Labor Code § 226.8(c) states, in relevant part, that, “If the person or employer has engaged in or is engaging in a pattern or practice willfully misclassifying individuals as independent contractors, the person or employer shall be subject to a civil penalty of not less than ten thousand dollars ($10,000) and not more than twenty-five thousand dollars ($25,000) for each violation, in addition to any other penalties or fines permitted by law.”