An employee misclassification lawsuit is a civil case in which you argue that your employer misclassified you in order to avoid paying overtime or other payroll benefits. You can be misclassified in one of several ways. If the lawsuit is successful, you can recover your unpaid wages as well as the benefits that you did not receive.
2 ways you can be misclassified
You can be misclassified in 2 different ways. Your employer can classify you:
- as an independent contractor when you are actually an employee, or
- as an exempt employee when you are actually non-exempt.
Employers can do this to:
- save money on paying you benefits,
- save money paying Medicare and Social Security taxes to the IRS, and/or
- deprive you of your rights and legal protections in the workplace.
The lawyers at our firm have found that some employers make misclassifying workers a pattern or practice. With so many workers being misclassified, the misclassification case would become a class action lawsuit, potentially with thousands of plaintiffs.
Independent contractor misclassification lawsuits
Independent contractor misclassification is when your employer pays you like an independent contractor but treats you like an employee.
Independent contractors are not legally entitled to:
- the minimum wage,
- overtime pay,
- meal and rest breaks, and
- other workplace benefits, like health insurance, vacation time, medical leave, and workers’ compensation.
However, independent contractors are entitled to control how their work is performed, such as by:
- setting their own hours,
- using their own equipment, and
- working for other clients.
Employers misclassify workers as independent contractors in order to avoid the workplace protections and entitlements that employees would have. Employers then control the purported independent contractor as if they were an employee. The employment lawyers at our law firm have found that employers will often have you sign an employment contract that expressly states that you are an independent contractor in order to make it seem as if that were the case.
However, employment law does not let the employment contract have the final say.
Different states use different tests to determine whether you have been misclassified as an independent contractor.
Economic realities test
Under federal regulations by the U.S. Department of Labor (DOL), the Fair Labor Standards Act (FLSA) uses the “economic realities test.” This test looks at all of the circumstances, but pays close attention to the following 6 factors:
- whether you have the opportunity to experience profit or loss based on your managerial skill,
- the extent of the investments made by you and your potential employer,
- whether the working relationship is a permanent or indefinite one,
- the nature and the degree of control that the potential employer has over you,
- the extent to which the work being done is integral to the potential employer’s business, and
- whether you are using special skills or initiative.[1]
Some states use the economic realities test as well.[2]
ABC test
Many other states, including California, use the “ABC test.” This test ignores the contractual relationship and looks at how 3 things work in practice:
- the control your employer exerts over you,
- whether the work you do is outside the company’s typical business, and
- whether you normally provide this type of work as an independent business.[3]
According to the California Labor & Workforce Development Agency:
“Under the ABC test, a worker is considered an employee and not an independent contractor, unless the hiring entity satisfies all three of these conditions.”[4]
Exempt employee misclassification
You can also be misclassified as an exempt worker when you should be a non-exempt worker. Generally, in order to be exempt, you must fall into a specific category of employee, such as:
- white-collar professional,
- licensed professional,
- outside salesperson, or
- computer professional.
Each category has its own requirements. For example, in California, in order for you to be exempt as a “white-collar professional,” you must:
- be primarily engaged in executive, administrative, or professional duties,
- regularly and customarily exercise independent judgment and discretion in your job, and
- earn a salary of at least twice the state minimum wage for full-time work.[5]
Employers misclassify workers because exempt workers do not have certain workplace rights and protections, such as:
- extra pay for overtime work,
- the minimum wage for hours worked, and
- meal and rest breaks.
Our employment law attorneys have found that employers often misclassify workers as exempt in order to get more work out of them for less pay. They also make frequent use of job titles to make it seem as if a role falls into one of the categories for exempt employees. For example, by using the title “administrative executive” for a data entry position, it makes it sound like the role would fall under the white-collar exemption.
Employment contracts are not dispositive
Whether you are an employee or an independent contractor is based on how your employment relationship actually works, not on what the employment contract says. Just because your employment contract states that you are an independent contractor or an exempt employee does not end the case.
In fact, our employment lawyers have found that such a provision can sometimes be a sign of misclassification. Many employers add it to the contract in order to get away with misclassifying you.
What you can recover in an employee misclassification lawsuit
A misclassification lawsuit can lead to the recovery of:
- unpaid wages,
- pay for missed rest or meal breaks,
- compensation for deprived employee benefits, like expense reimbursements or unemployment insurance,
- interest on missed payments, and
- attorneys’ fees.
If you were misclassified as exempt, federal law entitles you to liquidated damages, or double damages.[6] You would recover the full amount of your unpaid wages, plus the same amount again.
If you were deliberately misclassified, many states impose a civil penalty on your employer. For example, under California law, the willful misclassification of an employee as an independent contractor carries civil penalties of between $5,000 and $25,000 per violation.[7]
Misclassified employees who get terminated for questioning their employment status may be able to file a wrongful termination claim under their state’s labor law.
Common industries for worker misclassification
Workers in the gig economy are most frequently misclassified as independent contractors. This includes people who work for companies with business models that distance themselves from the people who work for them, like:
- Uber,
- Lyft,
- DoorDash, and
- Uber Eats.
Even outside of the gig economy, though, worker misclassification is common, particularly for jobs like:
- photographers,
- writers,
- editors,
- web designers,
- artists, and
- other freelancers.
Legal Citations:
[1] 29 CFR 795.100. See also 90 FR 1638 (Jan. 10, 2024).
[2] See Anfinson v. FedEx Ground Package System, 281 P.3d 289 (Wash. 2012).
[3] See California Labor Code 2775 LAB and Espejo v. The Copley Press, Inc., 13 Cal.App.5th 329 (2017).
[4] California Labor & Workforce Development Agency, “What is the ABC test?”
[5] 8 California Code of Regulations (CCR) 11040(1)(A).
[6] 29 USC 216(b).
[7] California Labor Code 226.8 LAB.
