April/May 2010 / Features
Workforce Classification in California
Employees and independent contractors have fundamentally different rights under California law. An independent contractor is not entitled to protection under wage and hour laws, which encompass minimum wage, overtime, meal and rest breaks, and reimbursement of work-related expenses. Companies need not provide workers’ compensation insurance for independent contractors, who also aren’t protected by many state and federal anti-discrimination laws.
The distinction between employees and independent contractors was developed to limit employers’ liability for injuries caused by hired help. In recognition of this, the common law “control test” arose. The crucial inquiry is “whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired.”
Both the courts and the California Labor Code have expressed a strong preference towards finding an employee-employer relationship.
Severe liabilities can be imposed for improper classification. In addition, government agencies such as the IRS, the state Division of Labor Standards Enforcement and the California Employment Development Department may come after the company. The District Attorney’s Office can bring criminal charges for violation of the Workers’ Compensation Act.
Written agreements are advisable. Careful drafting can strengthen the company’s defenses.
