With the seemingly endless claims surrounding employee misclassification (think Uber, Lyft, and the now out-of-business HomeJoy), many employers are understandably cautious about how they classify their workers. Unfortunately, there is no single test that enables an employer to quickly or easily determine whether an individual can/should be hired as an independent contractor/consultant/freelancer or as an employee.
There are, however, a number of different tests applied by different federal agencies and under different federal laws, as well as individual state tests. Under these various tests, a worker could theoretically be classified as an independent contractor according to the IRS, as an employee for purposes of the FLSA and federal wage-hour law and for purposes of state unemployment insurance, and as an independent contractor for purposes of Title VII. If you are confused and overwhelmed, you are not alone. So what is a California employer to do?
To start, begin with the presumption that these individual workers are employees. If faced with a misclassification claim, the burden will be on you to prove otherwise, and with courts leaning toward more protections for workers, it is safer to presume that your worker is an employee.
While there are a number of different tests used by a number of different agencies, including the California courts, each test does seem to have a few commonalities. These important factors, which show up in many independent contractor vs. employee tests, include:
(i) the nature and degree of control exercised or retained by the employer;
(ii) the worker’s opportunity for profit or loss;
(iii) the worker’s investment in facilities and equipment;
(iv) the level of special skills and initiative required for the job;
(v) the permanency of the relationship; and
(vi) whether the worker’s services are integral to the company.
The California Supreme Court has stated that the most significant factor to be considered is whether the person to whom the service is rendered (the employer or principal) has control or the right to control the worker both as to the work done and the manner and means in which it is performed. Other factors to consider when determining the classification of an employee include whether:
· the worker holds themselves out as an independent business;
· the contractor sets the rate of pay;
· there are set hours of work;
· the worker is supervised or is generally free from immediate direction.
This list is not exhaustive. Discuss the full list of factors with an experienced business lawyer who has handled employee misclassification claims.
To summarize, California employers must exercise sizable caution before hiring individuals as “contractors” and paying them on a 1099 basis. A knowledgeable HR or legal professional should review decisions before they are implemented.
For more information on how to properly classify employees, contact business lawyer Drew E. Pomerance today.
