Written by Galen Shimoda and Justin Rodriguez
The most common explanation we hear from people who incorrectly believe they are an independent contractor is “well, my employment agreement said I was an independent contractor.” A close second is “my employer told me that I was.” But, it’s not that simple. In fact, in California the labels put on the relationship by the parties is not determinative. Rather, there are certain factors that courts apply to determine whether a person is an employee or has been rightly classified as an independent contractor.
The consequences of a misclassification can be significant. In our experience, the jobs employers have attempted to classify as independent contractor positions generally require a lot of hard work with moderate to little benefits in return. That means long hours (overtime), excessive travel, and little to no breaks with no consequences. The reason for this is that independent contractors are not “employees” and thus do not receive the protections of employment laws. There is no wrongful termination for an independent contractor, only an employee. There is no overtime or meal and rest break entitlement to independent contractors.
Although employers can benefit from classifying its employees as an “independent contractor,” the legal ramifications can be significant if it was done in error. An employee may be able to sue for minimum and overtime wages, meal and rest break violations, pay stub violations, and so forth. An employer may also face penalties for not paying into unemployment or disability insurance for the individual. Similarly, an employer can face tax penalties for the improper reporting of a misclassified person’s wages.
In S.G. Borello & Sons v. Department of Industrial Relations, the Supreme Court of California enunciated the now infamous (at least in employment law circles) Borello factors. Some of the fourteen factors include consideration of the following:
1) whether there is a right of control over the person rendering services;
2) whether there was a right to terminate at will;
3) whether the person performing services operates a distinct business;
4) whether the type of work involved is usually done without supervision;
5) whether the individual is given tools or other materials to do the job;
6) whether the work is a part of the regular business of the company.
While there are fourteen factors to consider in making the determination, the company’s right to control and supervise the work of an individual is the most important consideration.
Here is an example of a possible misclassified worker. A wholesaler wishes to market its products to retailers. In doing so, it employs “independent contractors” who will take the merchandise and sell it to different retail establishments. However, the wholesaler also prohibits the “independent contractor” from selling any other wholesaler’s products, requires him to follow certain sales techniques, report their appointments, and restricts him from entering into the sales territory of other “independent contractors” working for the company. This may be an example of too much control to qualify the relationship as one of principal-independent contractor.
The above example is only one of many where a supposedly independent contractor is performing tasks that are integral to a company’s business. A company cannot simply get around these requirements by “carving up” its business into discrete, seemingly unrelated segments to claim that those involved in a particular segment lack any direct supervision or are not under any control. Where that is the case, courts do not focus on the control over the person doing discrete tasks; rather, it will analyze the company’s control of the entire business operations.
What makes the determination of independent contractor status even harder is that it is not necessary that the level of control cited in the wholesaler example above be present. A lesser amount of control in combination with the remaining Borello factors could also create an employer-employee relationship. Anything from directing the way in which paperwork is completed to document transactions, having certain dress codes, or providing materials used in performing the job can be enough, in combination, to trigger the employer-employee relationship.
From the above, it’s easy to see how a company can improperly classify an individual as an independent contractor rather than an employee.
If you have any issues with your classification at work, please contact our office.