How Much Can You Sue an Employer for Misclassification?

Employees everywhere have specific employment rights, and individuals can and should take legal action when they are violated. Unfortunately, sometimes, employee rights are violated because of misclassification. This leaves employees wondering: what amount is appropriate to seek out in a lawsuit? In this article, we’ll aim to answer all your questions about employees who are misclassified as independent contractors.

How Much Can You Sue an Employer for Misclassification?

Employees everywhere have specific employment rights, and individuals can and should take legal action when they are violated. Unfortunately, sometimes, employee rights are violated because of misclassification. This leaves employees wondering: what amount is appropriate to seek out in a lawsuit? In this article, we’ll aim to answer all your questions about employees who are misclassified as independent contractors.

The Problems with Being Misclassified as an Independent Contractor

Many employees in California struggle to figure out what to do after their employer misclassifies them as independent contractors. Why is this misclassification such a problem?

When employees are misclassified as independent contractors, they are often denied the benefits and rights of being an employee in California. Here are some ways that injuries, taxes, and insurance can be impacted by misclassification.

Work-related injuries

For example, if Dave injures himself while on the job at the steel plant, he might not be protected if he is designated an independent contractor.

Taxes

Taxes can also figure into this equation. For example, if Marsha files her taxes are realizes that she was misclassified as a self-employed individual rather than an employee, she may need to pay more to the IRS.

Unemployment insurance

Lastly, being wrongfully labeled as self-employed can also impact state unemployment benefits. For example, independent contractors are usually not entitled to unemployment benefits if they are laid off or fired. Therefore, this misclassification can quickly create a problem for employees.

The Definition of an Independent Contractor

An independent contractor is self-employed and, therefore, cannot be considered an employee. When an independent contractor is hired, he or she agrees with the company based on the services provided.

Advantages of Being an Independent Contractor

Independent contractors are allowed to have multiple clients and work for them simultaneously. These contractors also have more control than employees since deciding how a project or job is tackled and completed is up to them. The decisions are left up to the individual contractor as long as the work is finished within the timeframe and scope of the agreement or contract.

Recognizing an Independent Contractor

According to California courts, the ABC Test can be used to differentiate between employees and independent contractors.

The ABC Test specifies that an individual is an independent contractor if:

The individual is not under the control or subject to the direction of the hirer concerning how the work is managed and performed.
The person completes work that is not within the typical scope of the hirer’s business dealings.
The individual is engaged in an independent occupation, business, or trade similar to the work completed for the hirer.

If these three terms do not apply to the individual, that person is designated an employee. However, there are specific exemptions for individuals. Typically, if the hirer can do these three things, the individual is an employee, not an independent contractor.

Tell the individual when to report to work.
Fire the individual at will.
Instruct the individual on how to perform the job.

The Importance of Being Classified as an Employee

Workers typically want to be classified as employees unless they own companies. So why is this classification important to employees in California?

Employee Benefits

California employees are provided numerous benefits through their employers, and independent contractors do not receive these. Employee benefits include:

Workers’ compensation for injuries sustained on the job and illnesses
Health insurance
Overtime pay, vacation time, paid breaks, and other hour and wage protections
Unemployment benefits as needed
Retirement benefits
Medical and family leave
Social security taxes paid out by the employer
Medicare
Protection against workplace harassment, wrongful termination, discrimination, misconduct by the employer

Why Employers Misclassify Employees

Often, employers attempt to avoid paying out health insurance and/or payroll taxes through the wrongful misclassification of their employees. When employers misclassify employees to lower overhead costs or avoid being liable for specific employee benefits, this is against the law.

Suing an Employer for Misclassification

California Labor Code §226.8 states that it is illegal to intentionally or willfully misclassify a worker as an independent contractor. Based on this, employees who have been purposefully misclassified may be entitled to compensation from the employer.

Recovering Damages

If an individual files a wage and hour lawsuit, damages can be recovered in the form of:

Unpaid salaries and wages
Unpaid rest and meal breaks
Interest and penalties
Unpaid overtime
Liquidated damages amounting to twice the unpaid wages, plus interest if it was an intentional misclassification

Employer Penalties

The employer can also be fined for their purposeful wrongdoing. Employers can be fined anywhere from $5K to $25K per violation. Willful or purposeful misclassification is defined as voluntarily and knowingly misclassifying an employee as an independent contractor.

Private Attorney General Act Claims

A Private Attorney General Act (PAGA) Claim allows aggrieved workers to file lawsuits against employers for labor code violations. Employees can file on behalf of themselves, other employees, and the state of California. PAGA claims must also be filed within one year of the alleged violation.

PAGA and Misclassified Employees

Misclassified employees also may have the right to file a PAGA claim, in addition to the primary lawsuit. In addition, under the California Private Attorney General Act, employees have the right to take legal action against their employers if the California labor code has been violated.

Successful PAGA Claims

If the claim is successful, the employee can keep 25% of the penalties the employer must pay. The rest of the funds are paid out to the state of California. This PAGA claim comes in addition to any awards received for the wage and hour lawsuit.

Filing a Federal Lawsuit

Some employees elect to file a lawsuit for misclassification under the Fair Labor Standards Act. If this lawsuit is successful, the individual might receive double the amount of their unpaid wages, plus interest.

However, federal law does not use standard tests to determine whether the worker is an independent contractor or employee. Instead, multiple factors contribute to this determination, making winning the lawsuit more complex.

Suing an Employer for Misclassification: Weigh All the Options

One of the most vital takeaways from this article is that employees should weigh all options available before filing a claim for misclassification. The decision should be measured and informed, as opposed to rushed. However, since there are deadlines for filing employee misclassification claims, it is also important not to waste time.

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How Much Can You Sue an Employer for Misclassification?