WSRCA Contractors Counsel: Legal Talk
Independent Contractors vs. Employees
By: Kenneth S. Grossbart
Abdulaziz, Grossbart & Rudman
In past articles, we have written regarding the importance of classifying those persons who worked on your projects. Employees vs. independent contractors. Although our office has written on this subject before, I recently read an article by our colleague, Phil Vermeulen of the Contractors Licensing Center in Sacramento, who also wrote on the topic.
It is a very common practice for contractors to classify their workers as “independent contractors” when in reality they would be considered to be employees. This policy is done primarily to avoid the cost of workers’ compensation and overtime pay that would be due and owing to workers classified as employees. As Phil points out in his article, the Department of Industrial Relations (“DIR”) has strongly cautioned employers to be very careful with this dangerous practice. We reprint the following from DIR:
A federal court judge has sided with California Labor Commissioner, Julie A. Su, issuing a judgment in favor of five port and rail truck drivers against SPO Cartage Inc. The ruling awards the drivers reimbursement for expenses and unlawful deductions in the amount of $958,660 plus attorneys fees and costs. The Labor Commissioner previously issued awards to the five drivers following hearings that found they had been misclassified as independent contractors. XPO Cartage appealed the five decisions in Superior Court and the case was removed to Federal Court, where attorneys for the Labor Commissioner defended the decisions on behalf of the drivers. After a four-day bench trial and post-trial briefing, U.S. District Court Judge William Keller ruled that all five drivers were misclassified as independent contractors and were entitled to reimbursement for expenses and unlawful deductions.
State courts have also upheld the Labor Commissioner’s awards in misclassification cases in many other professions, particularly in construction, so we cannot emphasize enough, take heed!! All employers are urged to be aware of this important decision and the myriad consequences of misclassification of employees including:
• Stop orders and penalty assessments pursuant to Labor Code section 3710.1;
• Liability for overtime premium, meal period pay, and other remedies available to employees under the Labor Code and Orders of the Industrial Welfare Commission;
• Exposure for tort liability for injuries suffered by employees when workers’ compensation insurance is not secured (Labor Code section 3706);
• Exposure for unfair business practices (Business & Professions Code section 17200);
• Tax liability penalties; and
• Criminal liability (Labor Code section 3700.5).
Although the reprint from the DIR deals exclusively with a California business, the points raised would appear to be equally applicable to those businesses that operate outside of California. All businesses that are presently or are considering using independent contractors to perform work should do so with caution and not before seeking qualified legal advice.