How does the California Labor Board and the EDD evaluate independent contractor relationships.  Is this an employee or a 1099?

The case involving Federal Express combined with a recent Supreme Court ruling has radically changed the legal landscape relating to the classification of independent contractors. Misclassification of an employee as an independent contractor results in substantial civil penalties and payment of back pay and benefits, as well as unemployment and healthcare insurance.  The amount a San Diego employer owes each employee is staggering in these cases, and often results in the demise of the business itself.  Consider the example of an LA Port related trucking company with 38 drivers.  The California Labor Commissioner leveled fines and back pay exceeding $200,000 per driver or more than $7 million.  That company no longer exists.

How does the California Labor Board and the DOL evaluate independent contractor relationships?

Some of the new factors blend old standards with new perspectives:

• Percentage of the independent contractor’s income with any provider of work (hint: over 60%, bad)
• Extent of the employer’s control over the details of the work;
• Whether or not the individual is engaged in a distinct business;
• Whether the work in question is typically done independently or under employer supervision in the particular locality;
• The occupational skill required;
• The duration of employment;
• The method of payment;
• Whether the particular work performed by a 1099 is part of the employer’s regular business;
• The parties’ understanding as to whether they are creating a master-servant relationship; and
• Whether the principal (the employer) is in the same business as the individual (the employee or contractor).

The agencies will really look into the financial relationship between the parties, and the reality of whether or not the independent contract is providing services as part of an “independent business.”  What percentage of the independent contractor’s work is nested with a single client?  The higher that percentage raises above 60% with any single source, the more likely it is that they will render a decision that the independent contractor(s) is actually a statutory employee who has been misclassified as an independent contractor.

The experienced employer defense attorneys at the Watkins Firm consult with our San Diego employer business clients and help them to evaluate independent contractor relationships to avoid the substantial risk of a ruling of misclassification.  If you have questions about classification of independent contractors or have been contacted by a California or Federal Labor agency we invite you to review the strong recommendations of our clients and contact the Watkins Firm or call 858-535-1511 for a complimentary consultation today.

Remember, these agencies share information cooperatively.  Once a ruling of misclassification has been delivered, the other agencies are the next knock you will hear at the door.