Employee Misclassification: Why It Happens and How To Resolve It
You have the freedom to choose your job and whether you work as a part or full-time employee. Another popular working option for many adults is to work as an independent contractor.
Employees typically enjoy benefits such as health and life insurance. Depending on their earnings, employees might also get a refund during tax time. Independent contractors aren’t entitled to benefits or employers paying their taxes. But some people prefer contracting for its freedoms and higher pay rates.
The problem with worker classifications happens when a business is guilty of misclassification.
WHAT IS EMPLOYEE MISCLASSIFICATION?
Employee misclassification occurs when an employer mistakenly designates a worker. This situation commonly occurs when a company identifies an employee as a contractor. A business labeling a contractor as an employee is also a misclassification but isn’t as common.
EMPLOYEE VS. CONTRACTOR RIGHTS
Many differences exist between employees and contractors. Here’s a helpful breakdown of how these kinds of work differ.
EMPLOYEES TYPICALLY:
- Work with one company on a full-time basis
- Have taxes paid for by their employers
- Receive insurance from their employers
- Have more employer-based legal protections
- Get overtime pay for extra work
- Can file for workers’ compensation
CONTRACTORS TYPICALLY:
- Can work for multiple companies
- Pay self-employment taxes
- Don’t receive employer-based insurance
- Have no employer-based legal protections
- Don’t receive overtime pay
- Can’t file for workers’ compensation
WHY WOULD A COMPANY INTENTIONALLY MISCLASSIFY EMPLOYEES?
Sometimes, misclassifying an employee is the result of a simple error. Hopefully, someone catches this mistake and corrects it right away. Unfortunately, some companies knowingly misclassify workers.
But why would a company intentionally make mistakes in classifying employees? The answer sometimes involves money.
Contractors and employees both receive payments. By law, companies don’t pay taxes and insurance expenses for contractors. A contractor also doesn’t receive overtime pay. When companies intentionally misclassify employees as contractors, these businesses pay fewer expenses.
MISCLASSIFICATION DURING COVID
The COVID-19 pandemic brought many changes for employers and employees. Some companies shut down – others let employees work from home. A worldwide pandemic also led to the explosion of the gig economy, leading to companies like DoorDash and Uber hiring more workers.
Unfortunately, a global pandemic also led to more confusion about classifying workers. During this time, companies made lots of mistakes regarding employee classification.
Adding to the confusion on all sides was the passing of the Families First Coronavirus Response Act (FFCRA). The FFCRA was a COVID employment law requiring some employers to expand their family, medical, and paid sick leave requirements.
NOTABLE EXAMPLES OF EMPLOYEE MISCLASSIFICATION LAWSUITS
When courts find companies guilty of misclassifying workers, the penalties are often severe. Take a semi-recent case from 2010, resulting in a Florida contracting company paying $328,500 for misclassifying a group of its employees.
Rideshare company Lyft faced a class-action lawsuit when a large group of its drivers believed this business was guilty of employee misclassification. A few years after the suit, a San Francisco judge approved that Lyft pay a settlement of $27 million.
Another verdict for workers came in 2023 after the result of an eight-year investigation from Arizona’s Department of Labor. The verdict of this case resulted in two companies owing a total of $5.4 million after misclassifying over 1,400 delivery drivers.
WHAT KINDS OF WORKERS ARE MOST AT-RISK FOR EMPLOYEE MISCLASSIFICATION?
The workers who are at the most risk for employee misclassification often work in professions where contracting is common, such as healthcare, food service, and construction industries.
If your employer currently designates you as a contractor, it’s worth double-checking your state’s contractor guidelines. In most cases, employers correctly classify their workers because they don’t want to face costly fines and legal troubles. But it’s always good to be on the safe side as a worker.
GET HELP CLAIMING UNPAID OVERTIME AND OTHER WAGES
If you suspect you’re a misclassification victim, your former or current employer could owe you unpaid wages. As you can imagine, most companies don’t make it easy on workers seeking damages. That’s why you need the help of the hard-working legal team at Hodges & Foty.
With over 30 combined years of experience, David Hodges and Don Foty maintain a passion for protecting the rights of hard-working people. Plus, our clients only have to pay if they win. Contact Hodges & Foty for a no-cost case evaluation.
