Misclassifying Workers in California: The Consequences of Subcontractor Misclassification
In California, it is illegal to misclassify workers as subcontractors when they should be classified as employees. The consequences of misclassifying workers can be severe, both for the business and for the workers themselves.
The legal standard used to determine whether a worker should be classified as an employee or a subcontractor is the “ABC test”. Under the ABC test, a worker is considered an employee unless the hiring entity can prove all three of the following conditions:
A) The worker is free from the control and direction of the hiring entity in performing the work, both under the contract and in fact. B) The worker performs work that is outside the usual course of the hiring entity’s business. C) The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
If a worker is misclassified as a subcontractor, the hiring entity may be liable for various consequences, including:
- Unpaid overtime and minimum wage violations
- Unpaid taxes and penalties
- Liability for workers’ compensation insurance
- Liability for unemployment insurance
- Liability for failure to provide meal and rest breaks
- Liability for discrimination and harassment claims
In addition, workers who have been misclassified as subcontractors may be entitled to recover damages for lost wages and benefits, and the hiring entity may face civil penalties and even criminal charges for violating the law.
It’s important for businesses in California to understand the legal consequences of misclassifying workers and to properly classify their workers to avoid any legal issues. If you’re unsure about the status of your workers, it’s always a good idea to seek the advice of a knowledgeable attorney.