Independent Contractor Misclassification

Employers may misclassify an employee as an independent contractor to avoid their legal obligations. Our employment law and class action attorneys have fought and secured settlements on behalf of thousands of workers unlawfully misclassified as independent contractors. Misclassification deprives individuals of the many benefits, both public and private, that employees enjoy.

Misclassified employees are often denied access to employment benefits, such as family and medical leave, overtime, minimum wage and unemployment insurance, to which they are entitled. Similarly, misclassified employees are denied certain protections provided by employment laws prohibiting discrimination, retaliation, and wrongful termination.

What's the difference between an employee and an independent contractor?

The law recognizes three broad categories of workers: (1) hourly employees, (2) salaried employees, and (3) independent contractors. Both federal and state laws strive to explicitly distinguish employees from independent contractors by establishing tests that seek to determine the proper status of the worker.

The biggest difference between an independent contractor and an employee is that, as an independent contractor, an individual is equipped with the skills and resources that allows them to be their own boss. They are considered independent from the employer that hired them or self-employed. Independent contractors have the right to control the type of work that will be done and how it will be done. By contrast, a person is considered an employee if he or she is subject to another’s right to control the manner and means of performing the work.

While many independent contractor are classified properly, some workers may, either mistakenly or pusposefully, be classified as "independent contractors" when they are, in fact, employees. A list of typical problems can be found on the U.S. Department of Labor website. 

How can I determine whether I’m a misclassified independent contractor?

There are many methods to determine how to classify a worker, and it is possible for workers to be classified differently under different tests. Courts typically apply an “economic realities” test when a worker raises a claim under the Fair Labor Standards Act, the Family Medical Leave Act, or Title VII of the Civil Rights Act. This test looks at how economically dependent a worker is on the business and classifies workers who derive a large majority of their income from one business as employees. Factors a court considers include:

1. The extent to which the services rendered are an integral part of the principal’s business.
2. The permanency of the relationship.
3. The amount of the alleged contractor's investment in facilities and equipment.
4. The nature of degree of control by the principal.
5. The alleged contractor's opportunities for profit and loss.
6. The amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent contractor.
7. The degree of independent business organization and operation.

By contrast, the IRS uses a twenty-point test to determine how a worker is treated for class purposes. Additionally, states have their own tests to classify workers. Some states have adopted the economic realities test but most states use a “right to control” analysis. The right to control analysis varies from state-to-state and typically evaluates how much control the business exercises over the worker. You should consult with an experienced employment lawyer to understand whether you are properly classified.

What are the consequences to me if an employer misclassifies me as an independent contractor?

Misclassification can have serious implications to workers, including the loss of income, rights and protections afforded to employees under state and federal laws. Employers that have misclassified their employees as independent contractors may violate the Fair Labor Standards Act (“FLSA”) with respect to recordkeeping (not keeping records for these employees), nonpayment of the federal minimum wage, and nonpayment of overtime. Misclassification of employees as independent contractors may also affect the application of a host of other laws and regulations, including, but not necessarily limited to:

• The application of the laws prohibiting discrimination and retaliation in the workplace (i.e. Title VII of the Civil Rights Act of 1964, as amended);
• The employee’s rights regarding state benefit regimes, such as unemployment insurance benefits and workers’ compensation benefits;
• The employee’s rights to pension, health, and other employee benefit plans;
• The employee’s rights to job-protection and unpaid leave; and
• The employee’s right to organize and bargain collective under the National Labor Relation Act.

Contact Our Minnesota Employment Law and Class Action Attorneys

Many lawsuits involving independent contractor misclassification are class actions or collective actions that seek to recover unpaid overtime wages or compensation for working through mandated rest periods. The employment misclassification attorneys at Baillon Thome Jozwiak & Wanta LLP have represented workers and recovered millions of dollars in class action lawsuits alleging that workers were misclassified as independent contractors instead of employees. The laws regarding employment classification are complex and require detailed factual analysis. If you believe your company may have misclassified your position, contact us for a free initial consultation.

Related link:

• United States Department of Labor - Misclassification of Employees as Independent Contactors