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Independent Contractor Misclassification

Employers often misclassify their employees as independent contractors to avoid paying taxes and wages and to rob workers of their rights under the law. Misclassification occurs when employers incorrectly classify workers who are employees as independent contractors. The rules for misclassification are very complex. To understand your rights you should contact a misclassification lawyer.

The U.S. Department of Labor has identified employee misclassification as a major factor in the American wage theft crisis. Employees who are misclassified are denied their rights under minimum wage, overtime, and other labor laws.

We have seen in many cases that employers misclassify their employees as independent contractors, particularly among our nation’s most vulnerable workers. Misclassification deprives workers of their federal labor protections, including their right to be paid their full, legally earned wages.

-United States Secretary of Labor Marty Walsh (2022)

Our attorneys handle misclassification cases on an individual and class action basis. For example, in one of our cases, we represented a group of NFL cheerleaders. In that case, a New York judge granted our motion for class certification and determined that the cheerleaders had been misclassified as independent contractors, rather than employees.

In another case, our misclassification lawyers represented New Jersey delivery drivers misclassified as independent contractors. The workers signed agreements stating that they were independent contractor rather than employees. Nevertheless, the judge granted our motion for class certification. Both cases resulted in settlements benefitting our clients.

Ask a Lawyer: Where Does Independent Contractor Misclassification Occur?

Misclassification schemes can appear in a wide variety of work environments. However, the practice is most prevalent in the following industries:

  • Construction
  • Staffing Agencies
  • Janitorial Services
  • Cable Installation Companies
  • Delivery Companies
  • Adult Entertainment Clubs

Federal and state law tests to identify misclassification in wage theft cases vary quite a bit. For example, federal law is different from New York law and both are different from New Jersey Law. In addition, courts apply a different test to determine independent contractor status for tax purposes. Therefore, it is important to have a misclassification lawyer who understands the law on this complicated issue.

The Federal Economic Realities Test

In civil wage theft lawsuits, courts evaluate the relationship between the worker and the alleged employer to determine whether the worker has been misclassified.

However, for wage theft claims under federal law, courts apply the “Economic Realities Test”, which considers the following factors:

  1. The worker’s opportunity for profit or loss;
  2. Investments by the worker and the employer;
  3. Degree of permanence of the work relationship;
  4. Nature and degree of the alleged employer’s control over the worker;
  5. Whether the work is an integral part of the alleged employer’s business;
  6. The skill and initiative required to perform the job; and
  7. Lastly, the court will consider any additional evidence that supports a finding in favor or against the classification. 

No single factor controls whether an employee is misclassified under federal law. A misclassification lawyer can you understand your rights.

The New York Right to Control Test

Under New York law, most independent contractor wage cases (except construction industry workers) are evaluated under the Right to Control Test, which considers the following factors:

  1. Whether the work was performed at the convenience of the worker;
  2. Whether the worker was free to engage in other employment;
  3. Whether the worker was on the employer’s payroll;
  4. Whether the work was performed on a fixed schedule; and
  5. Any additional considerations that support a finding in favor or against the employer’s classification. 

The ABC Test for New Jersey Workers and New York Construction Workers

New Jersey law has a much more stringent independent contractor test. For more information about wage theft under New Jersey law, see our New Jersey law page. New York has recently adopted this test for construction workers. Courts apply the strict “ABC Test” to determine whether a New Jersey worker or New York construction worker has been misclassified.

To be classified as an independent contractor under the ABC Test, the worker must be:

  1. free from control in performing their job; AND
  2. must perform work that is not part of the usual work done by the business that hired them; AND
  3. must have an independently established business.

If the worker does not meet even one of these requirements, she must be classified as an employee.

Ask a Lawyer: Misclassification Myths

Crooked employers on the fact that many workers do not understand their rights. They also promote false ideas to cover up their scheme.

Myth #1: Workers Are Independent Contactors If They Receive A 1099 Form

That is false. Independent contractor misclassification is sometimes referred to as “1099 fraud” because employers will give their misclassified employees an IRS Form 1099-Misc at the end of their year, rather than a W-2 Form. The employer’s designation of the worker as a 1099 worker does not determine whether she is legally classified as an IC.

Myth #2: Workers Are Independent Contractors If They Sign An Independent Contractor Agreement

This is also False. Employers commonly require their workers to sign fraudulent contractor agreements stating that the worker understands that she is an independent contractor. However, if the employer treats the worker like an employee, no contract will allow him to break the law.  

Myth #3: Workers Are Independent Contractors If The Company They Work For Requires Them To Set Up Their Own Corporation

False. Employers often try to skirt the law by requiring their employees to form a separate company. The employer then pays the company for the worker’s work. However, this tactic does not necessarily turn an employee into an independent contractor where the employer controls the way that the work is performed.

If you think you are the victim of an independent contractor misclassification scheme contact our lawyers at (212) 991-8960 for a free consultation.

Independent Contractor Misclassification

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