Can You Sue an Employer For Employment Misclassification?

The short answer is: Yes!

What is Employment Misclassification?

Employment Misclassification has to do with how a company is paying a worker; are they classified as an employee or as an independent contractor? There are basically 3 sets of laws that cover misclassification, and just about all of them make it easier for employers to misclassify workers as “independent” when they should actually be classified as full time employees.

How Can You Be Misclassified as an Employee?

Whenever a worker is classified as an independent contractor, AKA a “1099” or “Gig Worker,” there is risk that the employer is misclassifying them.

An easy example is when I hired a painter to paint our law firm office. This painter was very clearly an “independent contractor,” because:

He was paid a single flat fee for the services he provided (painting);
The services he provided were not what our business normally does (provide legal services);
The painter was allowed, at least generally, to choose his own hours;
He was the one providing all the equipment needed for the job;
He was not required to wear any “branded” material, such as a polo that had a Sparks Law trademark on it (that would be weird, even for us lawyers… if your legal team is wearing branded polos, you probably need to find another one);
He could work more than 40 hours in a week and we wouldn’t have to pay him overtime pay;
If he fell off a ladder, on the job, he’d file his own worker’s compensation claim–he wouldn’t sue my company for a work-related injury;
He had hundreds of other customers that he did painting work for (our law firm wasn’t the sole provider of wages for him);
He was welcome to turn down the job; and
If he wanted to take 3 months off for vacation, he could do that and wouldn’t have to ask our firm’s “permission” – a regular employee may be fired for taking too much time “off.”

You get the idea, I hope. If the above factors were reversed, however, a judge would probably view him as a misclassified employee, and that would subject our law firm to vulnerability for misclassification of a worker as “independent” when they should instead be treated as a W2 employee.

The Consequences of Employment Misclassification

There are both legal consequences and practical consequences of misclassification; let’s look at a few of the major ones:

Practical Consequences of Misclassification of an Employee (that should be paid on a W2 basis) as an Independent Contractor (paid on a 1099 basis):

The contractor doesn’t get overtime pay, even if they work over 40 hours per week for the same company;
The contractor won’t get health insurance from the employer, even if the employer has over 50 employees and would otherwise be required to provide insurance under the Affordable Care Act; and/or
The contractor’s pay does not withhold for taxes, pay into Social Security, and the employer does not pay payroll tax on the worker’s wages (sometimes, workers prefer this, so that their paycheck is larger, but it usually causes complications, particularly when it comes time to pay taxes).
- It’s worth noting that misclassification is a “strict liability” law, meaning that it doesn’t really matter if the worker preferred to be paid as a contractor and not as a regular (W2) worker–the company is still liable for the misclassification itself.

Legal Consequences of Misclassification of an Employee (that should be paid on a W2 basis) as an Independent Contractor (paid on a 1099 basis):

The “contractor” can hire a lawyer to go after the employer for the misclassification. This is normally done with a demand letter and starts settlement negotiations depending on each side’s case (see factors above); and/or
The employee can go to the (usually Federal) Department of Labor (DOL) and open up a case. If their case/evidence is strong enough, this usually inspires an “audit” from the DOL into all of the company’s compensation records for workers in a similar situation to the worker that went to the DOL.
- “Defending” a Dep’t of Labor audit is a big deal for employers, and the audit itself can often result in hundreds of thousands of dollars in fines and back-pay. I cannot recommend this more highly: the company MUST hire a lawyer to help defend it. It’s a legal minefield and one misstep normally results in 2x the damages.

Speak With an Experienced Employment Misclassification Lawyer

Misclassification laws are very complex and cover a wide array of legal issues and factors. It’s rarely an “open and shut case;” there’s nuance to all of this that can be exploited by a good lawyer with experience on both sides. At Sparks Law, we’ve defended DOL audits and threat letters against Companies, with a great deal of success. We’ve also represented many misclassified employees and have been able to get them very substantial settlements from their prior employers. If you think you have a case, reach out to us – we’re always happy to talk! You can reach us at 470-268-5234 or email us at info@sparkslawpractice.com.