Orange County Employment Lawyer Blog

Surprisingly, California does not have an actual definition establishing what an independent contractor is. As a result, when clients inquire of my Orange County employment law firm whether they are independent contractors or employees, an analysis of their specific job duties as they relate to past court cases must be performed.

However, before doing that, it is important to understand why the determination is so important. Only employees are protected by the strict California wage and hour laws which include issues of overtime, meal periods, break periods and minimum wage, etc. Independent contractors are not subject to these laws. I have seen many scenarios where employers classify their employees as independent contractors to avoid paying overtime wages, among other things. These employers usually make their employees sign a document stating that the employee "acknowledges" that he is an independent contractor. In addition, the employee receives a Form 1099 instead of a W-2. However, just as I mentioned in a prior blog post about misclassifying employees, an employer's classification (or misclassification) of an employee as an independent contractor is not determinative as to what that employee's proper employment status truly is. Instead, the duties actually performed by the employee dictate his/her employment status.

The California Supreme Court case of S.G. Borello & Sons, Inc. v. Dept. of Industrial Relations (1989) 48 Cal.3d 341 is the definitive case in interpreting whether an individual is an employee or independent contractor. Borello set forth several critical factors that are considered, some of which are:

• Whether the person performing the services is engaged in an occupation or business distinct from that of the principal;
• Whether the principal or the worker supplies the instrumentalities, tools and the place for the person doing the work;
• The length of time for which the services are to be performed;
• The degree of permanence of the working relationship; and
• The method of payment, whether by time or by the job.

All Borello factors aside, an individual will likely be classified as an independent contractor only when:

1. the individual has the right to control and discretion as to the manner of performance of the contract for services in that the result of the work and not the means by which it is accomplished is the primary factor bargained for;


2. the individual is customarily engaged in an independently established business; and


3. the individual's independent contractor status is bona fide and not a subterfuge to avoid employee status.

RELATED RESOURCES

Division of Labor Standards Enforcement (DLSE)

An Irvine based business, doing business primarily in Orange County, but covering parts of all Southern California, called my Orange County employment law firm with a question. He has a dozen or so employees, and is unsure how to properly classify them so as to not get into any legal troubles.

His two choices are either exempt or non-exempt. Exempt essentially means you are salaried and meet one of several exceptions making you ineligible for overtime. Non-exempt, as you may guess, means you do not qualify for any of the exceptions and are thus entitled to overtime compensation.

As I have written in previous blog posts about overtime, California has by far the strictest and most complex labor laws in the country. California wage and hour laws are extremely "pro" employee, which often gets the uniformed small business owner (as well as corporate giants) into significant legal trouble.

It has been my experience that an employer's most common mistake is misclassifying an employee as exempt (i.e. a manager). Employers typically do this because managers (and other qualifying employees) are not entitled to overtime pay at the overtime premium rate of one and one half times the employee's regular rate of pay.

The problem is, just because you call someone a manager, does not make them one. Managers, for instance, must manage either an enterprise, a customarily recognized department or a subdivision thereof. Additionally, managers must also customarily and regularly direct the work of 2 or more employees and must have authority to hire/fire OR must have the ability to suggest/recommend the hiring/firing/advancement/promotion or other similar change of status of an employee. Lastly, a manager must customarily and regularly exercise discretion and independent judgement and must spend at least 51% of the time performing "exempt" work (i.e. managerial type work as described above)

I have seen it time and time again - an employer classifies an employee as a "manager" so he/she is exempt from receiving overtime pay. However, after analyzing the "managers" actual job duties, it often turns out that he/she is not in fact performing managerial tasks or given managerial authority. As a result, such an employee is then determined to be misclassified and as a result, is entitled to overtime compensation for all overtime hours previously worked for which he/she did not receive overtime compensation. What's more, if it turns out an entire group of employees were misclassified, then the case could be a class action.

RELATED RESOURCES

Code of Federal Regulations (CFR)

San Francisco Superior Court Judge John K. Stewart approved the $17.25 million final settlement of a class action complaint against energy giant PG&E. The class of employees filed suit against PG&E seeking compensation for unpaid overtime hours worked. The workers alleged, among other things, that they were misclassified as salary exempt meaning that they were not subject to California's strict overtime laws. As such, they worked many overtime hours without receiving any additional compensation other than their base salary.

The case, Conley v. Pacific Gas & Electric Co., was originally filed in March, 2000. Yes, 2000, which means it took 9 years for the case to resolve, an excruciating amount of time for the Plaintiffs and their attorneys to have an ongoing case. I have handled several wage and hour class actions during the last three years, so I am fully aware of the complexities of class actions and the amount of time it takes to litigate them. The biggest impediment to settling a class action is that once a class action is filed, the court must approve the settlement. As a result, the Defendant must offer enough money to satisfy the court that the settlement is fair and reasonable. Additionally, the Defendant is unable to settle with just the named Plaintiff and then dismiss the remainder of the complaint. Consequently, Defendant companies typically aggressively defend class actions.

PG&E spokeswoman Jennifer Zerwer, in typical "big company settles big lawsuit" fashion, said in regards to the settlement "PG&E truly appreciates the 20,000 men and women who work every day to provide safe and reliable energy to our customers. They are our most important asset. We believe these employees were properly classified, according to California law. We are pleased we were able to come to a compromise that is fair to both our employees and our customers." Loosely translated, we fought like mad for as long as we could to defend this case, but in the end came to grips with the fact we misclassified our employees and settled before we got into any more trouble.

PG&E workers get $17.25 million in OT case, The Mercury News, July 31, 2009

California has by far the strictest labor laws in the country. I receive many calls from clients asking what exactly constitutes overtime wages and if they are entitled to receive them. What overtime wages are, by definition, is pretty straight forward. However, whether employees are entitled to them is usually a much more complex issue dealing with whether the employee is classified as exempt or non-exempt.

In California, overtime wages are all hours worked over 8 hours in any workday AND are also all hours worked over 40 hours worked in a workweek. California Labor Code §510 states that eight hours of labor constitutes a day's work, and employment beyond eight hours in any workday or more that six days in any workweek is permissible provided the employee is compensated for the overtime at the following rates:

1. One and one-half times the employee's regular rate of pay for all hours worked in excess of eight hours up to and including 12 hours in any workday, and for the first eight hours worked on the seventh consecutive day of work in a workweek;
2. and Double the employee's regular rate of pay for all hours worked in excess of 12 hours in any workday and for all hours worked in excess of eight on the seventh consecutive day or work in a workweek.

RELATED RESOURCES

California Labor Code
Division of Labor Standards Enforcement (DLSE)