Five Common Employment Law Mistakes to Avoid in 2024 (Part One)
Our clients often ask us what are the most common employment law mistakes that employers make. Of course, the answer to this tends to change over time as laws and/or the way they are enforced constantly change, especially in California. In the coming weeks, we will explore common mistakes that employers have made over the last few years and will likely continue to make in 2024. We will also provide suggestions on how to avoid them.
Specifically, in this five-part weekly series, we will discuss the following five topics:
We will explore each of these five common mistakes in a weekly post, starting this week with the issue of misclassifying employees and contractors.
Misclassifying Employees and Contractors
a. Employees v. Independent Contractors
One of the most prevalent mistakes that we see employers make is misclassifying workers as independent contractors. California’s stringent “ABC test,” introduced in January 2020 by Assembly Bill 5 (AB 5), sets specific criteria that must be met for a worker to be classified as an independent contractor. These criteria are: (A) The worker is free from the control and direction of the hiring entity in connection with the performance of the work; (B) The worker performs tasks that are outside the usual course of the employer’s business; and (C) The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed. If a worker fails to meet all three criteria, they are generally considered an employee, and not a contractor.
The second prong of this test—that the worker’s services are outside the usual course of the employer’s business—tends to be the focus of analysis and the ultimate determining factor in how courts decide whether a worker is an employee or contractor. If the answer to the question: “Does this person do work that makes up the substance of my business?” is “yes,” then, 95% of the time, they should be classified as an employee. For example, in a highly-publicized case in 2020, the California Attorney General sued rideshare companies Uber and Lyft, seeking an injunction to stop the companies from treating their drivers as independent contractors. The Attorney General relied on a prior landmark case, Dynamex Operations West, Inc. v Superior Court, 4 Cal.5th 903 (2018), to argue that prong B of the ABC test should be broadly interpreted to include, “all persons who can reasonably be viewed as working in the hiring entity’s business.” The Attorney General argued that Uber and Lyft cannot possibly satisfy “prong B” of the ABC test because the rideshare companies’ primary business is to transport customers from point A to point B, and the drivers perform this exact service. Without the drivers, there would be no Uber or Lyft. Therefore, the Superior Court sided with the Attorney General and issued an injunction, finding that Uber and Lyft failed to comply with AB 5. This case is currently being appealed to the Ninth Circuit, and oral argument will be heard in March 2024.
To provide a counterexample: imagine a retail business that sells books. The bookstore hires a painter to paint the building. The painter is providing a service (painting the building) that is completely separate from the hiring entity’s business (selling books). In this case, the painter would meet “Prong B” of the ABC test because her work is entirely different and distinct from the bookstore’s primary business. In this example, the painter would also likely meet prongs A and C of the test, because: (1) Ostensibly the bookstore would not tell the painter how to go about painting the building, therefore meeting “Prong A,” and (2) If the painter is engaged in the trade of painting and does this work for other clients too (not just the bookstore), this would satisfy “Prong C.”
Considering these examples, employers should pay special attention to “Prong B” of the ABC test: looking at whether workers they treat as contractors are actually performing work that can reasonably be viewed as the same line of work as the employer’s primary business. We encourage our clients to take a closer look at their independent contractors’ scope of work, and discuss any borderline cases with counsel.
b. Exempt v. Non-Exempt Employees
Another common misclassification issue that we see is when employers classify an employee as exempt, when the employee should be non-exempt, or vice-versa. Below are a few key reminders about the distinction between exempt and non-exempt employees:
Exempt Employees:
Must meet an exemption under California law; such as the executive, administrative, computer professional, or outside salesperson exemptions.
Must meet a minimum salary threshold, set by California law. For most of the exemptions, the salary threshold is no less than two times the state minimum wage.
Exempt employees are generally salaried and are exempt from certain labor laws, such as overtime pay, and meal and rest break requirements.
Most employees are not exempt!
Non-Exempt Employees:
Must be categorized by one of the California Industrial Welfare Commission’s 17 Wage Orders, which are laws that apply to different employees based on their industry or occupation.
Non-exempt employees are typically paid on an hourly basis and are entitled to overtime pay. For most of the Wage Orders, non-exempt employees must be paid overtime for hours worked beyond eight hours in a workday and 40 hours in a workweek.
Non-exempt employees are entitled to meal and rest breaks.
Employers should review their existing employee classifications, ideally with counsel, to determine whether any workers who have been classified as exempt should be reclassified to non-exempt, or vice-versa.
We hope that these reminders about employee and contractor classifications have been helpful. Please follow along for Part 2 next week, in which we will discuss proactively managing and documenting employee performance concerns. Maier Law Group can assist with navigating these common pitfalls and proactively creating a healthy and effective workplace.
Read the rest of the series here:
Part One: Misclassifying Employees and Contractors
Part Two: Poorly Managing and Documenting Employee Performance Concerns
Part Three: Treating Similarly-Situated Employees Differently
Part Four: Neglecting to Engage in the Interactive Process
Part Five: Failing to Update the Employee Handbook
Author: Emily Harrington, Associate.
This article has been prepared for general informational purposes only and does not constitute advertising, solicitation, or legal advice. If you have questions about a particular matter, please contact the Maier Law Group directly.