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The Importance of Employee Classification

Robinson Bradford LLP
April 27, 2022

According to data from the Bureau of Labor Statistics (BLS), human resources management is predicted to grow at a faster rate than the combined average of all other professions by 2028. As such, compliance with local, state, and federal laws governing a company’s human resources continues to grow increasingly complicated. Proper classification of employees is one of the most prominent compliance issues and one of the most confusing. The rise of the gig economy has muddied the legal waters on who employers must classify as employees and who as independent contractors.

After AB5 became law in California, codifying a state Supreme Court decision handed down in 2018, many gig workers—especially those in the app-driven rideshare and food delivery industries—should have been classified as employees. The passage of Proposition 22 in 2020 exempted those gig employees from AB5, but in 2021, a California District Court ruled that Prop 22 is unconstitutional.

The enormous confusion surrounding employee classification is not a free pass for employers. They are obligated to follow the law and face consequences if they fail to do so. If you are an employer in Stockton, Temecula, Costa Mesa, or anywhere else in California, it’s smart to work with a seasoned employment law firm like Robinson Bradford LLP. We have been helping employers navigate compliance with employee classification for nearly two decades.

What is Employee Classification
& Why Is It Important?

There are many levels involved with classifying employees, such as which ones are hourly and which ones are salaried. Then there’s the larger issue of which workers are employees of your company and which are independent contractors.

Independent contractors typically do not qualify for most of the benefits employers are required to provide for employees. They operate their own business on their own terms, lack the permanency of an employee position, and may have skills employee positions in the company do not have.

Employees work for the company on a full- or part-time basis, at the behest of the employer. In addition to at least minimum wage, employers must provide such benefits as unemployment and workers’ compensation insurance, Social Security and Medicare contributions, and for some, health insurance subsidies and paid time off.

With many employee benefits and protections required by law, such as the Fair Labor Standards Act, Title VII of the Civil Rights Act of 1964, the Family and Medical Leave Act, and the Immigration and Nationality Act, employers who fail to properly classify employees risk breaking not only these federal laws but a multitude of California employment laws as well.

How Does California’s Enactment
of AB5 Affect My Company?

In 2018, the California Supreme Court rendered a decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles, creating case law that presumed that someone who performs services for an employer is an employee unless that person can be classified as an independent contractor based on a three-part test referred to as the “ABC Test.” The court applied the test in the Dynamex case.

In 2019, the California legislature codified the case law with the passage of the law referred to as AB5. In that law, the ABC Test was specified to determine whether someone who performs services for an employer met the requirements to determine if that person is an independent contractor and therefore, not an employee.

Based on the ABC Test, a worker should be classified as an employee unless the employer can meet all three of the following requirements:

A. The person is not under the direction and control of the employer for how the work is done;

B. The person is providing services that are not a part of the usual employee positions the employer hires workers to do; and,

C. The person does the same type of work independently for individuals and entities other than the employer.

Workers who meet all three requirements, are independent contractors and are therefore not entitled to the same protections and benefits as employees.

There are some exceptions to the ABC Test, including such licensed professionals as physicians, accountants, lawyers, engineers, architects, and commercial fishermen.

What Are the Penalties if I Don’t Comply?

Failure to comply with California labor law exposes you to civil actions allowed under the Labor Code Private Attorneys General Act which means workers who should have been classified as employees and were not can sue for damages related to wages, benefits, and other protections under the law.

Lawsuits are not only extremely expensive and time-consuming to defend but can severely damage a company’s reputation in the eyes of its customers, vendors, and employees.

How Robinson Bradford LLP Can Help

Employee misclassification is a serious matter as well as a complicated one. Even highly-trained human resources professionals can be perplexed by the issue, and one mistake can prove costly to a company’s reputation and its bottom line.

If you have questions about whether you are properly complying with employee classification laws, Robinson Bradford LLP can help. Our attorneys stay abreast of labor laws and regulations and can help client companies remain in compliance.

Don’t wait for a disgruntled employee to sue. If you live in Stockton or anywhere else in California, reach out to Robinson Bradford LLP today.