What Is Employee Misclassification?

Top Class Actions’s website and social media posts use affiliate links. If you make a purchase using such links, we may receive a commission, but it will not result in any additional charges to you. Please review our Affiliate Link Disclosure for more information.

Employee Misclassification Overview

Employee misclassification occurs when a company wrongly classifies its workers as exempt or as independent contractors.

Employee misclassification can mean that workers are not given the benefits that they are owed. If workers are classified as exempt when they are actually non-exempt, this can result in them not being paid the overtime wages they may deserve. Being classified as “exempt” means that employees are not eligible for overtime compensation. In California, a variety of workers–most often salaried employees in management or at executive levels–are classified as overtime exempt. However, if an employee is wrongfully classified as exempt when they are actually owed overtime pay, this is a case of employee misclassification.

Another form of misclassification occurs when workers are classified as independent contractors as opposed to employees. Employees are subject to stricter management and generally have less freedom in how and when they do their job. In contrast, independent contractors essentially employ themselves and only contract out their services to companies. However, employees are generally entitled to far more benefits than an independent contractor.

If workers are classified as independent contractors when they are actually employees, the lack of benefits can be even more dramatic. Independent contractors are not covered by the same labor laws, meaning that workers may be denied minimum wage, overtime protection, workers’ compensation, family leave, unemployment insurance, union rights, protection against retaliation, and more.

“The misclassification of workers as independent contractors creates an unfair playing field for responsible employers who honor their lawful obligations to their employees,” according to the California Department of Industrial Resources.

“The misclassification of workers results in a loss of payroll tax revenue to the State, estimated at $7 billion per year, and increased reliance on the public safety net by workers who are denied access to work-based protections.”

Legal Consequences of Employee Misclassification

According to the California Department of Industrial Resources, state legislation allows for civil penalties between $5,000 and $25,000 per violation if companies misclassify their employees. If a company misclassifies their employee, either willfully or accidentally, workers may be able to take legal action against them in order to recover these penalties, along with other wages or benefits they are owed under California labor law. Additionally, workers may be able to file a wage claim with the Division of Labor Standards Enforcement if they believe they were misclassified in any way.

California Employee Misclassification Lawsuits

Numerous employees have filed misclassification lawsuits and class action lawsuits against their employers in the state of California.

In March 2019, FedEx was hit with an employee misclassification class action lawsuit claiming that the company’s drivers were wrongfully classified as independent contractors. Because of this classification, FedEx is allegedly allowed to deny overtime pay to their drivers.

In May 2019, employee misclassification claims against Uber ended in a $20 million settlement. Plaintiffs in the Uber class action lawsuit argued that drivers for the ride-sharing service were wrongfully classified as independent contractors. Because of the way that Uber allegedly interfered with their drivers’ work, the drivers were allegedly owed extra benefits under employee classifications.