May 2

Employee vs. Independent Contractor: What’s in a Name?


Over 2.6 million Californians are independent contractors.1 Forming 25% of the nation’s 10.3 million independent contractors,2 this army of workers is bigger than the active and reserve personnel of all five branches of the U.S. military combined.3 What’s in a name? A lot. If an employer misclassifies a worker as an independent contractor, he loses the right to everything from parking reimbursement4 and meal breaks5 to overtime6 and workers’ compensation.7 Fortunately, employees can get a mountain of civil penalties if their employers misclassify them as independent contractors.

The Name Game: Employee vs. Independent Contractor

Many employers think that they can magically transform an employee into an independent contractor just by handing him a Form 1099. In fact, the law presumes that an individual who works for another is an employee.8 The principal can rebut the presumption by proving that he lacked the right to control the manner and means – the “details” – of the individual’s work.9 Even if a principal never exercises that right of control, an employer-employee relationship can still exist, so long as he retains that right.10 The principal has the right to control the details of an individual’s work if he has the right to terminate him at will and without cause.11 

The principal’s right of control, though the most important factor in determining whether an individual is an employee or an independent contractor, isn’t the only factor. If it quacks like a duck, it’s a duck. So in what you might call the “duck” test, an individual who controls the details of his own work can still be an employee if a flurry of factors weigh in his favor, including: (1) whether his services are a regular part of his principal’s business or distinct from it; (2) whether he or the principal provides the tools, materials, and place of work; (3) whether the principal pays him for his time or just for completing a project. 

How Can a Misclassified Employee Sue His Employer? Let Me Count the Ways

If an employer fails to prove that an individual is an independent contractor, he’ll owe massive civil penalties. Labor Code section 226.8 prohibits “any person or employer” from: (1) willfully misclassifying an individual as an independent contractor; or (2) charging him a fee or deducting his wages if doing so would’ve been unlawful had the employer not misclassified him.12 Such person or employer is liable for: (1) a civil penalty of $5,000 to $15,000 per violation or (2) a civil penalty of $10,000 to $25,000 per violation if a pattern or practice of violations exists.13 These penalties can add up to hundreds of thousands of dollars in no time.

In addition, Labor Code section 2753 prohibits “any person” from knowingly advising an employer to treat a worker as an independent contractor.14 The person and the employer will be jointly and severally liable if a court or the Labor Commissioner finds that the worker wasn’t an independent contractor. The person who so advises the employer isn’t liable if: (a) he receives no money or other valuable consideration for his advice; (b) he’s a licensed attorney providing legal advice in the course of practicing law; or (c) he “provides advice to his or her employer.”15 Just who that leaves as a potential violator is unclear.

  1. Cyndia Zwahlen, “Scrutiny Over Workers’ Status,” L.A. TIMES, Apr. 21, 2008. 

  2. Bureau of Labor Statistics, “Contingent and Alternative Employment Arrangements, February 2005,” Press Release, July 27, 2005. 

  3. “Armed Forces Strength Figures for December 31, 2013.” United States Department of Defense. 

  4. Lab. Code §2802. 

  5. Lab. Code §§226.7, 512. 

  6. Lab. Code §§510, 1194. 

  7. Lab. Code §3351 et seq. 

  8. See, e.g., Lab. Code §§2750, 2750.5, 3353, 3357. 

  9. S. G. Borello &; Sons, Inc. v. Dep’t of Indus. Relations, 48 Cal.3d 341, 350 (1989). 

  10. Empire Star Mines Co. v. Cal. Emp. Comm’n, 28 Cal.2d 33, 43 (1946). 

  11. Malloy v. Fong, 37 Cal.2d 356, 370 (1951). 

  12. Lab. Code §226.8(a). 

  13. Lab. Code §226.8(b. 

  14. Lab. Code §2753(a). 

  15. Lab. Code §2753(b). 

Ben Rothman, Esq.

Ben Rothman is a Los Angeles-based attorney practicing in the areas of personal injury, employment, and workers' compensation on a "no recovery, no fee" basis. Call him at (424) 465-2948 for a free, no-obligation consultation.