In general, there are two types of worker misclassification. The first is misclassification of workers as independent contractors instead of employees. The second is misclassifying employees as “exempt” from California’s overtime and break laws, instead of “non-exempt.”

Employers that misclassify employees as independent contractors are subject to penalties that range from $5,000 to $10,000 for each violation of Labor Code § 226.8(a). An employer that has engaged in a pattern or practice of violations is subject to an increased penalty of between $10,000 and $25,000 per violation. (Labor Code § 226.8(b)–(c).) These claims may be brought pursuant to the Labor Code Private Attorneys General Act of 2004 (also known as “PAGA”). (Labor Code §§ 2698–2699.5; Noe v. Superior Court (2015) 237 CA4th 316, 340.) The failure to pay contributions for unemployment or state disability insurance benefits because of misclassification subjects an employer to a 10 percent penalty of the amount of the contributions, plus interest on any unpaid contributions. (Unemployment Insurance Code §§ 1112–1113.)

Employers that misclassify employee as “exempt” from California’s wage and hour laws are subject to extensive damages for the underlying violations of California’s laws regarding the minimum wage, overtime, rest and meal break, wage statements and other related laws. Labor Code § 515(a) provides that certain “executive, administrative, and professional employees” will be exempt from various wage and hour laws in California. Under this statute, to be considered exempt:

• Employees must be paid at twice the minimum wage in California;
• Their work must be executive, administrative, or professional in nature (these are called the “white collar” exemptions)
• Their primary duties must involve that exempt work; and
• They must discharge those primary duties by regularly exercising independent judgment and discretion.

The determination of whether an employee is misclassified as “exempt” or as an independent contractor is a legal analysis requiring comprehensive knowledge of California’s labor laws and regulations. If you believe you may be misclassified, you should consult an attorney immediately.