Employees Misclassified As Independent Contractors

Employees Misclassified As Independent Contractors Can Sue Entities Who Participate In The Decision To Call Them Contractors

California law provides stiff penalties for entities and individuals who misclassify employees as independent contractors. These penalties can be $5,000 to $25,000 per misclassified worker. Despite such serious penalties, it is still commonplace for employers to misclassify persons as independent contractors, for a variety of reasons. The California Court of Appeal recently held that such penalties can be imposed not just against the entity directly responsible for the misclassification decision but also to other entities, but only where those other entities “engage” in the misclassification. It is not yet clear what constitutes this engagement – a question that future courts will struggle with. For instance, it might be that franchisors, who advise franchisees to misclassify employees as independent contractors to save costs, could be liable. Similarly, a business that hires a labor contractor and instructs them to just use independent contractors to keep down costs – knowing that these workers should be treated as employees – could be liable.