California Contractor Laws and Status

Am I an independent contractor or an employee and does it make a difference?

Whether a worker is an “employee” or an “independent contractor” makes a big difference. Independent contractors are not entitled to many benefits that must be offered to employees, such as overtime pay, health and pension benefits, social security credits, protection against discrimination, and unemployment insurance. Some employers wrongly classify their workers as “independent contractors” to avoid providing those benefits. It is in your best interest to know whether you are properly classified as an employee or independent contractor.

Recently, there have been some noteworthy cases where employers mistakenly classified employees as independent contractors. The Allstate Insurance Company announced that it agreed to pay $19.5 million to 292 agents who claimed the good hands people wrongly changed their status from “employees” to “independent contractors”. This settlement came after Allstate settled the claims of another 1,000 agents for $22 million. In another case, Microsoft agreed to pay $96.9 million to employees who contended that they were not temporary, independent contractors but really permanent employees of Microsoft.

Courts use different tests for workers for deciding different issues, but there are some common principles. In wage and hour cases, they focus on the following factors:

  • The degree of control the employer exercises over the day-to-day work performed;
  • The amount of the worker’s investment in facilities and work equipment;
  • The worker’s opportunities for profit and loss;
  • The degree to which the worker’s independent initiative, judgment and planning is necessary for the success of the worker’s operation;
  • The permanency of the relationship between the employer and the worker;
  • The extent to which the services are a part of the employer’s business;
  • How dependent the worker is on the employer for continued work.

The courts will look to all the facts of a particular case and compare them to the appropriate factors. Thus, the employees should understand that an agreement that he or she is an independent contractor, though important, will not decide the case.