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Independent Contractor vs. Employee - a Dangerous Decision

By Thomas M Lee

One common way for an employer to avoid having to pay overtime wages and employment taxes is to misclassify an employee as an independent contractor. An independent contractor does not have the same rights and protections that are afforded to an employee. Thus, it is very tempting for an employer to classify its employees as independent contractors.

Thankfully, the law has been recently changed to address this issue. Sections 226.8 and 2753 to the California Labor Code ("Labor Code"). Section 226.8 prohibits the "willful misclassification" of an individual as an independent contractor, and also prohibits an employer from charging fees to a misclassified individual for items that an employee is not normally required to purchase, such as equipment, space rental, services, or licenses. Section 2753 imposes joint and several liability on any person who, for money or other valuable consideration, knowingly advises an employer to treat an individual as an independent contractor simply to avoid the employee designation.

The law imposes harsh civil penalties for employer violations. Those penalties can compound substantially and quickly. Labor Code Section 228.6 imposes a penalty of between $5,000 and $15,000 for each violation, in addition to other penalties permitted by law. When an employer is found to have engaged in a pattern or practice of violations, the penalty increases to between $10,000 and $25,000 per violation.

The law also imposes non-monetary penalties. An employer found to have violated Labor Code Section 228.6 may also be ordered to post on its website (or, if the employer has no website, in a prominent physical location) a notice stating that the employer has committed a "serious violation of the law." This notice must be posted for a year, and it must invite aggrieved individuals to contact the California Labor and Workforce Development Agency, among other requirements.

Thus, if you believe that your employer wrongfully misclassified you as an independent contractor, such as by issuing you an IRS 1099 MISC form instead of a W-2 form at the end of the year, chances are you are right. Also, if your employer controlled the hours that you worked, made you work at the employer's business premises, made you do work that is directly related to the employer's business, or provided you with any tools or equipment to do your work, chances are that you are in fact an employee with protected rights. The only way to be sure is to contact Thomas M. Lee for a consultation.

Please note that the information I am providing here in this entry, or in my website is NOT to be construed as legal advice nor is it meant to form an attorney-client relationship. For a free legal consultation by phone, please call or email me anytime.