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What to Do If You're Misclassified as an Independent Contractor

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Make sure your employer isn't violating your rights.

Businesses are outsourcing more and more work to independent contractors: the COVID-19 pandemic accelerated this trend, but independent contracting and freelance work were on the rise even before then. This isn't necessarily a bad thing. When done well, independent contractor relationships can work to the advantage of both employers and workers, providing greater flexibility and freedom.

However, some businesses misclassify workers as independent contractors, and that's a huge problem. Independent contractors are exempt from overtime and minimum wage laws, don't get health insurance and workers' compensation benefits, and lack important legal protections against discrimination and harassment. That's why it's important to know whether you truly qualify to be treated as an independent contractor and pursue legal recourse if you are misclassified.

What's the difference between an employee and an independent contractor?

Broadly speaking, an employee is on a company's payroll and receives wages and benefits for performing work in a specific role under the employer's direction. On the other hand, an independent contractor is a self-employed worker who works for a business on a contract basis.

Unfortunately, no single criterion determines whether a particular worker should be considered an employee or a contractor. Federal judges in the Sixth Circuit, which includes Ohio, use the "economic reality" test to evaluate whether a given worker is properly classified as an employee or an independent contractor for employment law purposes. (Note that this test is different from what the IRS uses for tax purposes.) The "economic reality" test looks at the employment relationship holistically, considering the following six factors:

  1. Permanency of the relationship: the court evaluates whether you work full-time or as needed, whether the timeframe of employment is fixed or indefinite (that is, whether you're working for that employer permanently or temporarily), and whether you are free to provide services to other employers as well. If you're a "contractor" but work primarily or exclusively for one employer on an ongoing basis, you may be misclassified.
  2. Degree of skill required: the court evaluates whether the work requires a mastery of a particular skill or simply basic, repetitive tasks. Independent contractors are usually hired for their mastery of a particular skill; if that doesn't apply to your role, you may be misclassified.
  3. Worker's investment in equipment or materials: the court evaluates whether you need to bring tools and materials to the job with you. Independent contractors usually use their own tools; if you use the employer's tools, you may be misclassified.
  4. Worker's opportunity for profit or loss depending on skill: the court examines whether you have the opportunity to earn more if you produce a higher quantity or quality of work, and, conversely, whether you can lose income if you fail to perform. You may be misclassified if you have little opportunity for profit or loss (that is, you're paid at the same hourly rate regardless of quantity or quality).
  5. Employer's degree of control over the manner in which the work is performed: the court evaluates the level of control the employer has over your day-to-day activities, schedule, and work methods. Independent contractors are usually free to set their own hours and methods as long as the work gets done; if the employer controls your schedule, you may be misclassified.
  6. Whether the work is an integral part of the company's business: the court evaluates whether your services are integral to the employer's operation. Independent contractors are usually hired to work on particular projects or products; if your work is a core part of the business itself, you may be misclassified.

If you think you are misclassified, you need to talk to an employment lawyer.

Again, whether you are classified as an employee or an independent contractor has significant implications, including whether you are paid minimum wage or overtime. An employer can't just say you are a contractor; your role has to meet certain legal criteria. Ultimately, only an attorney can tell you whether you are properly classified and what your legal recourse is if you've been misclassified.

If you have any reason to believe you've been misclassified as a contractor, your first step should be to talk to an attorney. There's no obligation to file a lawsuit or take other legal action, just answers about your legal rights and options. Contact us today to discuss your situation with an experienced attorney at Gibson Law, LLC.

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