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Wage Claims, Overtime & Other Employee Compensation

MISCLASSIFYING EMPLOYEES AS INDEPENDENT CONTRACTORS CAN BE RISKY AND EXPENSIVE

     Independent contractors or so-called 1099 workers are not employees. They do not have the same rights and protections that employees enjoy. For both employees and employers, classifying the worker correctly as an employee or an independent contractor is important. The classification determines the worker’s rights and the employer’s duties toward the worker.

     For example, independent contractors do not have the rights to minimum wage or overtime payment that employees have. The former cannot claim the overtime premium rate (1.5 or 2 times the regular hourly rate). Employees can avail of the basic employment benefits such as unemployment or worker’s compensation protection. Independent contractors cannot.

     In order to save costs and maximize profits, some employers misclassify their workers as independent contractors. They get the workers to agree to this arrangement, perhaps as a condition to being hired. However, even if the worker has agreed to be classified as an independent contractor and has agreed to receive a 1099, this does not mean that the worker has been correctly classified as an independent corrector. The independent contractor status is determined by law, not by the parties’ agreement.

     Although the law does not define the term “independent contractor” the courts and enforcement authorities look at several factors to determine whether a worker is an employee or an independent contractor. The most important factor they consider is the employer’s right to control the worker’s manner and means of performance of the job. If the employer has complete control over how the worker should do the work, directs the worker what tasks to accomplish and how to accomplish these tasks, then the worker is an employee and not an independent contractor.

     Misclassification can be risky and expensive for the employer. A case in point: A group of couriers and drivers filed a class action lawsuit against their employer, UPS Supply Chain Solutions, a subsidiary of UPS, the world’s largest package delivery company. The employees claimed that the company created a fake independent contractor relationship in order to misclassify them as independent contractors. As a result, they were deprived of overtime pay and other employee benefits.

     The employer went on to settle the case for $12.8 million. The settlement affected 2,400 workers, who were categorized into two settlement groups: workers who made claims under the Fair Labor Standards Act (FLSA) and workers claiming violations of California state wage and hour law and seeking to recover unpaid minimum wages and overtime wages, reimbursement for business expenses, reporting time pay, and waiting time penalties. The FLSA workers will receive an average of $9,500 per member. The California workers will receive an average of $25,000 per member.

© Law Offices C. Joe Sayas, Jr.