Employers that classify their employees as independent contractors are attempting to avoid a number of mandated regulations, such as a minimum hourly wage, overtime, lunch breaks, providing protective clothing or equipment, anti-discrimination laws.
Basically, they are misclassifying employees deliberately in order to cut down their wage bill. In many states, this sort of misclassification is illegal and there are penalties that are imposed on employers that fail to classify their employees correctly and fairly.
If you are working for an employer and have been forced to agree to signing some kind of contract that appears to designate you as an independent contractor, then you may be able to take legal action against the employer and redesignate you as a regular employee or obtain damages from your employer for unpaid wages. You will need an employment lawyer to help you navigate your way through a complex set of laws.
What is Misclassification of Employees?
Misclassification of employees as independent contractors is a deliberate attempt to avoid the cost of responsibilities that employers have to their employees as well as state and federal governments.
Employers who deliberately misclassify their employees avoid their responsibilities to their employees under the federal Fair Labor Standards Act (FLSA), equivalent state labor laws, state and federal anti-discrimination legislation as administered by the Equal Employment Opportunities Commission (EEOC). They also do not collect taxes that would otherwise be paid to state and federal agencies that help protect the employee from unemployment and injuries or illness at work.
Employees misclassified as independent contractors are often the least well paid and least likely to understand what is happening to them. They do not enjoy the normal protections that employees have, such as a minimum wage, overtime pay, family and medical leave, a right not to be discriminated against because of their race, gender, age, religious denomination etc.
They also lose the right to claim workers’ compensation if they become injured or ill because of their job as this is denied to independent contractors.
The fact that payroll tax and other taxes are not collected by employers puts a huge burden on all other tax payers across the state and country.
If misclassification is proven, employers may be forced to pay back large amounts of back pay to compensate their employees because of the misclassification. They may also be forced to pay state and federal governments large amounts of taxes that they have avoided paying while their employees were misclassified. There may also be further penalties imposed by state and federal authorities for evasion of tax.
State Laws
An understanding of existing state laws on classification of independent contractor status is vital to getting your employment status rectified. State laws can be quite complicated and it will certainly help to talk this through with an employment lawyer who will know what the local state laws are where you work and whether the conditions of your work should be classified as employment or as an independent contractor.
The legal test determining employment status has got stricter in many states over the years. Many states now use what is called the ABC test to determine employment status. States like California, Connecticut, Illinois, Massachusetts, Nebraska and New Jersey, amongst others use this three step test. Others states use a less strict test known as the “Control and Direction Test.”
The ABC test consists of three criteria that if passed designates the workers as an independent contractor.
The first test is whether the worker has in reality any control over what they do in their job or whether they are under the instructions of the employer. Independent contractors should have in practice control over their job. This is similar to but stricter than the “Control and Direction Test” of some states.
The second test is whether the work that is done is related to the type of work done in that place of employment. For example, a company that is in the financial industry employs an electrician, it is not regarded as related to the nature of the place of employment so this person could be classified as an independent contractor.
The third test is whether the ‘contractor’ actually operates their own established business with other clients or customers. If this is not the case, then there is probably a misclassification.
Next Steps
You should have an employment lawyer on your side to make sure your claim is filed correctly.
You are welcome to fill out a free case evaluation form below to find an employment lawyer near you.
