In California, people perform different jobs and in various capacities. While some people are the owners of their companies, others work as formal employees. Some people offer their services to companies as independent contractors. While working as an independent contractor, you do not have the same rights and protection as formal employees. However, you still have some rights under California law. For instance, you can sue your employer for wrongful termination if they unfairly dismiss you. Orange County Workers Compensation Attorney is committed to helping 1099 independent contractors seek wrongful termination compensation.
Who is a 1099 Independent Contractor?
In California, workers fall under two categories: employees and independent contractors. Businesses prepare different forms for employees and independent contractors for tax purposes. For an employee, the employer is supposed to offer a complete copy of IRS Form W-2. For an independent contractor, the employer is supposed to provide a duly filled copy of IRS Form 1099-MISC. It is for this reason that many people refer to independent contractors as 1099 workers and regular employees as W-2 employees.
The classification of a worker as an employee or as a legal contractor can affect their legal rights. California State has put in place various ways of determining if a person is a worker or an independent employee. Multiple tests employed by the State include the manner and means test, the control test, the economic realities test, and the test under California's anti-discrimination laws.
The four tests differ slightly, but there is a crucial factor in all of the tests; the control of the employer or hiring party exercises over the worker. The more the authority an employer exercises over a worker, the higher the chances that the worker is an employee.
The control test comes in handy when determining the federal tax obligations of workers and businesses. The classification will affect areas such as employment taxes, income tax withholdings, unemployment taxes, and social security withholdings, among other factors. In determining if a person is an employee or independent contractor, the IRS considers how a business controls the details of a worker's job. If a company has a right to control the aspects of a person's work, the IRS considers the person an employee.
Internal Revenue Service (IRS) considers several aspects of control. IRS considers behavioral control by determining which party controls when, where, and how the job is conducted. Financial control, which is the right to control the financial aspects of an individual's work, also counts. IRS also considers the employee-employer relationship, including whether the employer provides insurance to the worker and the permanency of the working relationship.
The law defines several classes of workers as employees, even if they do not meet the employee's standards. These people are statutory workers and include life insurance agents, drivers, traveling salespeople, and at-home workers.
The manner and means test determines the degree of control a business has over how a worker executes their job. Where a high level of control exists, there is a high likelihood that the worker is an employee. Consider whether a worker performs their duties under supervision. Can the business fire the worker at any time? Does the worker operate a separate business? How long will the job last? Does the worker provide their own work equipment? Did the business train the worker? Such questions will help gauge if a person is an employee or a 1099 independent contractor.
It is important to note that a written agreement is not determinative of whether a person is a worker or an employee. For instance, a written agreement may exist, stating that a worker is an independent contractor. However, as long as the relationship is that of an employer and an employee, the written agreement does not hold.
Many workers who consider themselves as independent contractors are indeed employees. In many instances, employers misclassify workers as independent contractors rather than employees. If your employer misclassifies you as an independent contractor, you are entitled to receive all the benefits you would qualify for as an employee.
The economic realities test can also help to determine if a worker is a 1099 independent contractor or an employee. This test relies on the fact that economic realities and not contractual labels determine a worker’s employment status. Under this test, if a worker enjoys an exclusive right to control how they perform a task, they qualify as an independent contractor. However, if the business manages the activities of the worker, the worker is an employee.
Can a 1099 Independent Contractor Sue for Wrongful Termination?
In today's economy, many employers are hiring "independent contractors" rather than employees. For instance, a company may bring in young workers to work on a specific project and label them as independent contractors. By doing this, employers shield themselves from employment laws that protect employees. Employers label themselves as brokers or clients to protect themselves against workers' compensation laws.
As an independent contractor, you can sue for wrongful termination, and particularly the employer misclassifies you as an independent contractor, yet you are an employee. The California law considers any person rendering services to another person to be an employee. Therefore, even if the business you work for labels you an independent contractor, the law may treat you as an employee. This may be the case even when a written agreement exists.
Discrimination laws do not protect 1099 independent contractors. It may, therefore, be hard for an independent contractor to sue a company if they are victims of wrongful termination. However, a workers' compensation attorney can help you understand if you are more of an employee rather than an independent contractor.
On the other hand, independent contractors also have legal rights. There is a misconception that an independent contractor cannot sue a company for wrongful termination. Independent contractors have more limitations than employees. However, it is essential to note that being a contractor does not preclude you from fighting for your rights. Contractors may have other legal rights against an employer, including breach of contract.
Application of ABC Test for Independent Contractors
In 2018, the California Supreme court made a significant decision in Dynamex Operations v. Superior Court. The decision altered the standard that has been in use for the past three decades in classifying employees and independent contractors. The decision led to a strict classification test known as the ABC test. Under this ABC test, the law considers a worker to be an employee unless an employer proves three elements.
To prove that a worker is an independent contractor, the employer must prove that the worker is free from control and direction. It must be clear that the employer does not direct or control the worker in the course of executing work duties. It must also be evident that the worker performs functions outside the usual course of the presumed employer's business. The new classification also requires an independent contractor to have an independently established trade, business, or occupation. The company or the profession should be similar to the work the contractor is offering to the employer.
Many questions surround the scope and applicability of the ABC test. The California Court of Appeal outlined that the ABC test only replaced the Borello Test in regards to wage and hour claims. The Court of Appeal maintained this stand while handling the Garcia v. Border Transportation Group, LLP, case. In non-wage and hour claims of determining whether a worker is an employee or an independent contractor, the more forgiving Borello Test still applies.
In the case of Garcia v. Border Transportation Group, LLP, Garcia worked as a taxi driver for Border Transportation Group (BTG). BTG labeled Garcia as an independent contractor. Garcia filed a claim against BTG for wrongful termination in violation of public policy and unpaid wages, among other factors. Initially, the trial court ruled in favor of BTG. The court claimed that all the Plaintiff's courses of action failed since he was an independent contractor. The court had solely relied on the Borello Test. However, Garcia was not happy with the court's decision, and this prompted him to appeal the ruling.
The California Supreme Court made a ruling stating that in some instances, the ABC rule should apply instead of the Borello Test. This was before the Court of Appeal concluded Garcia's case. The court held that summary adjudication was proper for the Plaintiff's non-wage claims.
In investigating Garcia's case under the ABC rule, the court held that the defendant did not prove that the Plaintiff was involved in an independently established trade or occupation. Whether BTG allowed or prohibited the Plaintiff from operating an independent matter did not matter. The court considered whether Garcia was actively involved in a separate business similar to the services he was offering to BTG. The court held that Garcia was more of an employee than a 1099 independent contractor.
How Can I Tell If I am an Independent Contractor or an Employee?
There is no clear definition of the term independent contractor. In determining whether a worker is an employee or independent contractor, one must rely on the interpretations of enforcement agencies and courts. When distinguishing between an employee and an independent contractor, the Division of Labor Standards Enforcement (DLSE) starts by assuming a worker is an employee. DLSE makes this assumption per Labor Code Section 3357. However, this assumption is questionable. In determining whether a worker is an employee or an independent contractor, several factors are put into consideration.
In addition to determining the degree of control of the worker by the company, other factors also help establish the employment relationship. For instance, you may consider the length of time a worker takes to lender services to the company. You may also consider the level of the permanence of the job. What is the worker's opportunity for making a profit or loss based on the worker's managerial skill? Consider also the method of payment adopted by the company. Does the company pay the worker by time or by the job performed?
You can also distinguish between an employee and an independent contractor based on the worker's investment in equipment or tools needed for the job. Consider also whether the services offered by the worker require specialized skills.
Even if control is absent, an employer-employee relationship may exist. A proof of this is if the principal retains control of the operation as a whole. Another proof of employment is if the duties performed by a worker are an integral part of the employer's operation. In some instances, the nature of work a worker does makes detailed control and monitoring unnecessary.
Your Employer Pays You as an Independent Contractor
In some instances, your employer may tell you that you are an independent contractor. Your employer may fail to make payroll deductions and other deductions, including social security and withholding tax. You may also notice that at the end of the year, your employer offers you a 1099 IRS form instead of the W-2 form. It is important to note that such factors do not automatically make you an independent contractor. The mode of payment your employer uses to pay you does not determine your employment status. An employer cannot change your status from an employee to an independent contractor through the mode of payment.
What Difference Does It Make If You Are an Employee or an Independent Contractor?
It makes a difference if you are an employee or an independent contractor. An independent contractor may not fall under the protection of California's wage and hour laws. Retaliation and anti-discriminatory laws may not protect independent contractors, but the laws protect employees. Employees may go to agencies such as the Division of Labor Standards Enforcement (DLSE) to seek enforcement of the law. However, 1099 independent contractors can only go to court to settle their disputes and to enforce other rights under the contract agreement.
You Signed an Agreement as an Independent Contractor
When starting a job, an employer may make you sign an agreement outlining that you are an independent contractor. It is important to note that this does not imply that you are an independent contractor. A written agreement does not establish an independent contractor relationship. The determination of employment status relies on the application of appropriate law and analysis of various factors.
What Constitutes Wrongful Termination?
Under California law, if an employee has not signed an employment contract for a specific duration, the law considers the employee to be employed at will. Employers can fire employees at will without any reason and at any time. However, employees enjoy several rights, which, if violated, could give rise to a wrongful termination claim. Misclassified 1099 independent contractors may also enjoy similar rights as long as they are able to prove the misclassification.
Legal claims for wrongful termination are subject to the statute of limitations. A statute of limitations refers to a time limit set by the law within which a plaintiff should file a specific legal claim. The court may dismiss a wrongful termination case if the Plaintiff fails to file a claim within the required timeframe.
For a wrongful termination in violation of public policy, a plaintiff should file a claim within two years after the firing. For wrongful termination due to harassment or discrimination, the applicable statute of limitations is one year of the termination. According to FEHA (Fair Employment and Housing Act), a wrongful termination claim due to harassment or discrimination should be presented to DFEH (Department of Fair Employment and Housing) within one year. If DFEH does not resolve the matter, it issues a right to sue notice. A plaintiff should file a claim in the state court within 90 days after DFEH makes a ruling. For a wrongful termination as a breach of contract, the law requires a plaintiff to file a claim within four years after the breach of a written contract. You will be required to register a claim within two years of the breach if the contract with an employer is implied or an oral contract.
For an oral or an implied contract, an employee or independent contractor has to file the claim
How Should a Company Terminate Independent Contractors?
Proper termination of an independent contractor relies on several factors, including whether a written contract agreement exists. Many contracts for independent contractors have termination provisions. Termination provisions describe the circumstances under which a company can terminate the services of an independent contractor. In most termination provisions, either the company or the contractor can terminate the contract. If the parties involved fail to follow the termination provisions, termination lawsuits may result.
A proper agreement between a company and an independent contractor should have notice provisions. This provision requires the terminating party to give the other party a minimum notice, as outlined in the contract agreement. In most cases, the notice period is six months. If the company provides an independent contractor a shorter notice than agreed, a wrongful termination lawsuit may result. If a written contract does not exist, an oral contract may apply.
An independent contractor can challenge a termination in court if he/she feels that he/she was more of an employee than an independent contractor.
Cases of Wrongful Termination
An employer can wrongfully terminate an employee or an independent contractor in violation of public policy. This may apply if a company fires a worker for failing to comply with an order to violate antitrust laws. The wrongful termination may also apply if a company fires a worker for acting as a whistleblower. Whistleblowing entails disclosing or uncovering a violation of state or federal regulations. A company may also fire a worker for supporting another worker's claim, including sexual harassment claims.
Wrongful termination because of harassment or discrimination may occur due to several factors. For instance, a company may fire a worker due to his/her gender, race, disability, religion, or other protected status. Wrongful termination due to harassment may occur if a company terminates a worker for objecting to unruly behavior like sexual harassment.
Wrongful termination of an independent contractor or employee may occur as a breach of contract. For instance, if an employer should give a six months' notice before terminating a contract but only gives three months' notice, a worker may sue for wrongful termination. A worker may file a claim if the contract states that a worker the company can only fire a worker for a cause, but the company terminates the worker for no reason.
Steps to Take in a Wrongful Termination Case
When filing a wrongful termination claim, you must start by filing a pre-complaint inquiry with the California Department of Fair Employment and Housing. This applies if you are filing a claim for wrongful termination due to harassment, discrimination, or retaliation. Upon filing a wrongful termination claim with DFEH, the department may investigate and resolve the wrongful termination claim. The department may also grant the Plaintiff a right-to-sue notice. The notice allows the Plaintiff to take the Wrongful termination claim to court.
If you are pursuing a wrongful termination for violation of public policy or breach of contract, you can file a statement outlining the allegations in an appropriate court. You have to file the claim within the required statutes of limitations. Upon filing a complaint, all adverse parties get a service of process in accordance with the California Rules of Civil Procedure.
How Can You Prove Wrongful Termination?
To prove wrongful termination, it must be evident that an employment relationship existed between the defendant and the Plaintiff. In some instances, an independent contractor may qualify as an employee, according to California law. It must also be evident that the employment terminated or constructively terminated the employment relationship. Constructive termination of employment may occur if an employer makes an employee's or independent contractor’s working conditions very hard, making the worker resign.
It must also be evident that the wrongful termination was based on a certain factor or several factors. The main factors include breach of contract, public policy, discrimination, or harassment.
Contact an Orange County Workers Compensation Attorney Near Me
Wrongful termination claims are difficult to navigate, especially for 1099 independent contractors. In some instances, an independent contractor may prove that he/she is an employee and not a contractor. In some other instances, an independent contractor may file a wrongful termination on breach of contract claim. Orange County Workers Compensation Attorney can help you take the right step in the face of wrongful termination. Contact us at 949-423-3212 and speak to one of our attorneys.
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