Not as Easy as "ABC" …. The Status of Independent Contractors in California

By Cynthia Elkins

Cynthia Elkins is the principal of Elkins Employment Law, founded in 1998, a firm devoted to the representation and defense of employers in all aspects of their employment-law and human resource legal concerns. Prior to starting her own practice, Cynthia held several positions with employment law firms.

As California employers are well aware the issue of whether a worker is properly classified as an "employee" or an "independent contractor" has long been a concern. Misclassification can lead to liability for a myriad of wage and hour claims (e.g. failure to pay minimum wage and overtime, penalties for missed meals and rest breaks, and failure to reimburse business expenses among other potential claims, etc.). A finding of misclassification can also lead to employer liability for unemployment insurance, state disability insurance, social security contributions and unpaid workers compensation premiums.

Many state and federal agencies that regulate employees have their own rules and criteria upon which a determination of independent contractor status is made, including the Development Department (EDD)¹, the Division of Labor Standards Enforcement (DLSE)², the Internal Revenue Service³ and the Division of Workers’ Compensation (DWC)⁴ These agencies can audit the independent contractor classification and a contrary finding can lead to significant liability. In addition, the Labor Commissioner’s office can issue a stop order prohibiting the use of such labor until workers’ compensation insurance is obtained covering the workers⁵