misclassification

How California Employers Can Avoid Employee Misclassification

February 27, 2023 | by Nassiri Law

As Los Angeles employment lawyers, our focus is advocating for workers whose legal rights as employees have been violated by their employer. Most people immediately think of workplace issues with discrimination, harassment, wrongful termination, etc. But it often involves classifying employees improperly – categorizing them as independent contractors as opposed to employees, in turn denying workers the employment protection and benefits that the title of “employee” confers by law.

An estimated one-third of all employers in the U.S. have misclassified at least one worker at some point.

Sometimes, this “mix-up” is willful and intentional, with the employer aware of exactly what they were doing with the specific (if not express) goal to deprive workers of the rights and compensation to which they’d otherwise be entitled. But in a lot of cases, the employer may simply not understand how the law applies.

Lack of intent on the part of the employer isn’t a full-proof defense. If an issue is discovered, employers still have a responsibility to come correct once they’re made aware. That might mean back pay, tax contributions, and liquidated damages for however long the misclassification lasted. However, those whose employee misclassification was intentional are likely to face more significant fines and other penalties from the government and courts.

While our Los Angeles employment lawyers represent the workers in these scenarios, we’ve handled enough of these cases to be able to provide employers with a few tips on making sure employees are appropriate classified in your operation. Yes, this helps mitigate the organization’s liability, but also to make sure workers are treated fairly – and that’s always been our ultimate goal.

What is an Independent Contractor, Exactly?

Workers in the U.S. can typically be classified as either employees or independent contractors. (There are also other contingent employment arrangements, such as on-call, on-retainer, or temp agency workers.) Continue Reading ›

Gig Employers Want California Worker Classification Law Declared Unconstitutional

July 12, 2022 | by Nassiri Law

Lawyers for two large “gig” employers want California’s worker classification law declared unconstitutional by a federal appellate court, which they are lobbying to block its enforcement.

The U.S. Court of Appeals for the Ninth Circuit is slated to hear arguments from attorneys for Uber and Postmates that that the state law that determines who is an “employee” and who is an “independent contractor” is irrational, treats similarly-situated workers and professions unfairly, and is discriminatory toward some tech-based employers like Uber, while exempting errand-based apps that use similar driver-courier models.

As our Los Angeles employment lawyers can explain, the law being targeted is A.B. 5. It is the provision under which a worker is considered an employee unless the hiring entity can prove it was an independent contractor relationship through the ABC test – a three-factor analysis that examines the control over which the hiring entity had over the worker. The California employee classification rule impacts thousands of workers in the so-called “gig economy.” Although they enjoy flexibility, they lack certain employer-covered legal protections, such as unemployment benefits, overtime, paid meal breaks, and workers’ compensation.

It’s unlikely that the Ninth Circuit’s final ruling will be the last word. Whatever the ultimate decision is likely to be appealed to the U.S. Supreme Court. That might be a smart gamble for the company’s especially, given the solidly conservative majority of the U.S. Supreme Court. The consensus by many California employment law attorneys is that deep-pocketed companies are essentially playing the long-game of establishing a virtual monopoly on taxiing services. Doing so gives them greater power to lobby for laws (including employment laws) that bend to their favor.

That’s why this case is one that states beyond California’s borders are watching closely. Its history is one that extends back a few years. Continue Reading ›

California Misclassification Lawsuit Settles for $16 Million

June 30, 2022 | by Nassiri Law

A California misclassification lawsuit was recently settled for nearly $16 million. The case involved hundreds of franchisees for an Ohio-based tool company, which was accused of wrongly classifying employee distributors as independent contractors. The business model include selling the company’s tools at wholesale costs ,to be sold to consumers at retail prices.

The class action litigation accused the employer of signing franchise agreements in California mobile stores. By wrongly classifying these entities as contractors, the employees were denied proper reimbursement for business expenses, paid overtime, meal and rest breaks, and accurate wage statements. The California labor lawsuit was filed last year, with the primary plaintiff alleging he worked approximately 20 hours of overtime weekly. The franchise agreement also reportedly required distributors to pay the tool company an initial fee, distribute only approved tools from the company’s brand using its own system, attend distributor training programs (while paying their own costs associated with this training), lease/purchase a branded truck from the company, wear the tool company’s branded uniforms, and operate their branded truck only within a company-identified territory.

Despite holding this tight control over the workers, the company insisted they were independent contractors. The U.S. District Court for the Northern District of California disagreed, recently approving a settlement in Fleming v. Matco Tools Corp. that grants each class member $35,000 in cash. Those eligible for debt relief may be entitled to approximately $42,000 each.

Employee v. Independent Contractor: What is the Difference in California?

There are many reasons why a company would have motivation to label a worker as an independent contractor versus an employee – most of them financial. While workers are entitled to minimum wages, overtime pay protections, travel reimbursement costs, and breaks, independent contractors are pretty much left to cover these things on their own. Companies don’t have to pay workers’ compensation insurance or unemployment insurance for independent contractors – but they do for employees.

Employees receive critical protections and benefits – which is why misclassification is such a big problem. California law skews heavily in favor of the presumption of an employee-employer relationship. Continue Reading ›

Court: California Can Enforce AB5 Against Trucking Companies for Employee Misclassification

May 1, 2021 | by Nassiri Law

The State of California can begin enforcing a labor law geared to combat employee misclassification that trucking companies say will force them to eliminate the use of independent owner-operators. The 9th Circuit Court of Appeals ruled that a judge in San Diego was wrong to hand down an injunction barring the state’s labor commissioner from enforcing the 2019 Assembly Bill 5.

The statute codified the 2018 ruling in Dynamex Operations W. v. Superior Ct. by the California Supreme Court, formalizing the so-called “ABC Test” of ascertaining when a person is an employee or an independent contractor.

As our Los Angeles employment attorneys can explain, employee misclassification has long been a serious problem in California, with companies intentionally classifying workers wrongly as independent contractors rather than employees to avoid responsibility for things like minimum wage, required breaks, workers’ compensation insurance coverage and more. Continue Reading ›

Regulators Target Gig Economy for Crackdown on Wage and Hour Violations

August 21, 2020 | by Nassiri Law

In the first AB5 enforcement lawsuit over California wage and hour violations, the state labor commissioner alleges that a gig-economy car wash company in Southern California is breaking the law by misclassifying workers as independent contractors when in fact they are employees. It’s the same argument that has been made in numerous employment lawsuits against gig economy giants like Uber and Lyft.

As our Los Angeles employee misclassification attorneys can explain, this issue has become so problematic because employees who are wrongly classified as independent contractors lose out on a host of employment benefits, including minimum wages, overtime, health insurance, tax breaks and underpayment of things like Social Security, Medicare, etc.

The defendant in this action, MobilWash, uses an app to offer on-demand car wash and detailing services. Customers can order the services, pay for them and provide a tip all through their phone. Workers use their own vehicles and supplies, go to the customer’s vehicle and provide the cleaning services. They must purchase their own uniforms, insurance, cleaning equipment and supplies and gas. Workers are not reimbursed for travel time or business expenses – as they would be if they were employees. Further, the company charges a $2 transaction fee for every tip the workers receive, something the labor commissioner says is illegal.

Recently, the Orange County Register editorial board posited that if the arrangement wasn’t working for those involved, it wouldn’t be successful. The labor commissioner says that’s not a solid legal argument, and that if a worker puts in 10 hours daily for six days each week, they’re entitled to more than $1,500 in weekly wages (which includes minimum wage plus overtime), something they aren’t receiving. The board argued that such companies are never going to operate like traditional factories, with workers spending 10 consecutive hours daily, clocking in and out, when the whole concept of the service is being on-demand. Continue Reading ›

California Employee Misclassification at Issue in State’s Uber, Lyft Lawsuit

May 28, 2020 | by Nassiri Law

The State of California is suing the nation’s two biggest ride-share companies, asserting violations of a new state law against employee misclassification.

As our Los Angeles employee misclassification attorneys can explain, at issue is the fact that the firms are treating their workers as if they are independent contractors as opposed to employees. The state attorney general’s office filed the lawsuit, and is joined by several other city attorneys, including Los Angeles.

The law is California Assembly Bill 5, known as AB5 for short or “the gig worker law.” It was passed last fall and went into effect Jan. 1st. Continue Reading ›

Journalists May Be Exempted from AB5, California’s Contractor Law

February 28, 2020 | by Nassiri Law

Freelance journalists may soon be exempted from the controversial Assembly Bill 5, which went into effect Jan. 1st. The new law codified the California Supreme Court’s ruling in the Dynamex case, which established an “ABC test” for ascertaining whether workers are misclassified as independent contractors when in fact they should be receiving all the benefits of employment.

The law, introduced by Assemblywoman Lorena Gonzalez, has been the target of gig industry behemoths like Postmates, Lyft and Instacart. Freelance journalists, though, are another group that has been embroiled in a fight over AB5. Specifically, the law stipulates that a journalist who produces more than 35 submissions to a single entity should be considered an employee. But that, freelancers say, would effectively kill their career. Media companies, who increasingly can hire reporters and photographers who live and work anywhere, would be less inclined to hire writers from California – or cut them off at the 35-submissions mark.

Gonzalez said she had received extensive feedback from writers, photographers and journalists about how this would impact their ability to make a living, and said changes would be made to accommodate them, while still offering protection against employee misclassification. She indicated that amendments to the law would be introduced that would remove the submission cap. However, contractors still cannot replace employees. Contracts with freelance journalists would also need to expressly indicate the pay rate, payment deadline, individual’s copyrights to the work. Companies also won’t have the right to restrict freelancers from working for more than one outlet, and they can’t mainly perform their work on the business’s premises. Continue Reading ›

Should Amway Sellers be Classified – And Paid – As Employees?

January 15, 2020 | by Nassiri Law

A worker for Amway, a multi-level marketing company that sells home, health and beauty care products, is suing the company and alleging he and other sellers should be classified and paid as employees, rather than independent contractors.

Our Los Angeles employee misclassification attorneys are watching this case closely because it could impact a host of other similar types of business models, such as LuLaRoe, Young Living, Scentsy, Rodan + Fields, Avon Products, Herbalife and others.

Amway sells products like detergent and mouthwash, promoting itself as a means for sellers to become “small business owners.” They thrive on person-to-person sales. These types of companies have come under fire for reportedly predatory business models that require salespersons to buy several hundred or thousand dollars in products just to get started. In some cases, individuals have drained their savings and retirement accounts. The Federal Trade Commission has issued warnings about these types of pyramid schemes, but the companies remain in business.

Most of these companies refer to their salespersons as independent “participants,” “distributors” or “contractors.” But are they?

Not according to the plaintiff in the latest California employment lawsuit against Amway. Continue Reading ›

Uber and Postmates Sue California, Declaring AB5 Unconstitutional

January 5, 2020 | by Nassiri Law

Two major corporations are suing the State of California alleging that a labor rights law that went into effect Jan. 1, 2020 is unconstitutional. Filed in Los Angeles federal court on Dec. 30, 2019, the lawsuit by Uber Technologies and Postmates are striking preemptively against Assembly Bill 5, which was intended to extend greater employment protections to those who work for companies like these and others within the so-called “gig economy.” But the plaintiffs say companies that rely on so-called “gig workers” were unfairly targeted while those in other industries were given more favorable treatment under the law with regard to how they classify workers. In turn, this has threatened the workers’ ability to be flexible.

As our Los Angeles employee misclassification attorneys can explain, AB5 has been the subject of intense and bitter dispute, with drivers, food couriers and other workers caught up in the middle. These workers derive their income by accepting “jobs” through these companies’ smartphone and computer apps. Plaintiffs allege the law arbitrarily exempted various types of workers, including commercial fisherman, grant writers, travel agents, direct salespeople and construction truck drivers.

Written as a means of codifying the California Supreme Court’s 2018 ruling in Dynamex Operations West, Inc. v. Superior Court of Los Angeles (i.e., “the Dynamex ruling). Continue Reading ›

Legal Challenges to California’s Gig Worker Law Are Likely to Abound in 2020

December 30, 2019 | by Nassiri Law

The state’s new worker classification law takes effect on Jan. 1st. Those behind the AB5 legislative effort know it was an uphill battle – but it appears the fight isn’t over yet. Court cases challenging the law are piling up, some companies are saying they simply won’t cooperate (likely to lead to more litigation) and there is a looming multimillion-dollar ballot initiative gearing up for next November.

Our Los Angeles employee misclassification attorneys will be watching these developments closely to see how these disputes unfold.

AB5 is going to make it more difficult for companies to label their workers as independent contractors rather than employees. Legislators backing the measure pointed to mounting evidence that companies are improperly classifying workers as independent contractors to avoid the added expenses of things like workers’ compensation benefits, health insurance, minimum wage, overtime, unemployment insurance, the right to unionize and other benefits to which employees (but not independent contractors) are entitled.

Employer preparations for AB5 should already be well underway. If you operate a small business and still aren’t sure about whether your operations fall under the umbrella of AB5 or if so, how to restructure your employment model, it’s imperative that you contact a longtime employment law firm to help protect your legal interests. Some companies have been able to find creative workarounds that satisfy employees as well as their bottom line. This can include using staffing agencies, having contractors form an LLC (to qualify for a business-to-business exemption) and other strategies. Continue Reading ›