A Toolmaker’s Distributors Land a $15M Settlement in the Misclassification Case They Filed in the Northern District of California

A Toolmaker’s Distributors Land a $15M Settlement in the Misclassification Case They Filed in the Northern District of California There are various different ways an employer might illegally deny you compensation. They might classify you as an "exempt" employee when you really were "non-exempt" or they might classify you as an independent contractor even though the nature of your work dictated that you really were an employee. If you've been denied overtime pay as a result of misclassification, you may be entitled to a judgment and back wages, so it pays to make sure you have a knowledgeable San Mateo unpaid overtime lawyer handling your case. Earlier this year, a group of employees landed a $15.8 million settlement in their case that focused on whether they were independent contractors or employees. The workers were distributors who contracted with a tool and equipment manufacturer to "make sales and service calls to existing and prospective customers." Here in California, the law follows something nicknamed the "ABC" test, which the California Supreme Court created in 1993, to assess whether a worker in a wage and-hour case was an employee or an independent contractor.

How California's 'ABC' Test Works

The ABC test starts from the presumption that a worker is an employee. The burden falls on the employer, if it wants to classify that worker as an independent contractor, to overcome that presumption by meeting these three conditions: "(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 work that is outside the usual course of the hiring entity’s business; and (C) The worker is customarily engaged in an independently established trade, occupation, or business." Regarding criterion A, the Supreme Court was clear that to be an independent contractor, a worker must be free from "control and direction" both in actual practice and the terms and obligations of the parties' contractual agreement. Criterion B requires comparing what the hiring entity does versus what the alleged contractor does. Say, for example, the hiring entity is an online sports news source. An electrician who was hired to rewire the company's headquarters to accommodate a new server would be much more likely to meet the criterion than reporters hired to research and write about the latest developments in athletics. Criterion C also requires looking at the totality of the worker's work. Returning to the example above, an electrician who has an incorporated business with many clients (of which the sports website is only one) would be much more likely to satisfy prong C than a reporter (and ostensible independent contractor) who works solely for that one service. That's especially true if the reporter's contract forbids reporters from doing reporting work for competing providers. The tool company in the distributors' case tried an additional angle to defeat the workers' claim, asserting that it and the distributors had a franchisor-franchisee relationship and, as a result, the ABC test didn't apply at all. The court rejected that argument, citing several recent rulings involving another hiring entity that has been involved in multiple misclassification cases: Uber. In both a 2020 Court of Appeal Uber case and a 2021 federal District Court Uber case, the judges concluded that "the phrase 'hiring entity'... is intended to be expansive for reasons specific to California wage and hour laws and the longstanding social safety net objective of those laws in this state." Based on that worker-friendly legal standard, the tool company lost its arguments and, subsequently, agreed to settle. That settlement, which received final approval on April 29, called for the tool company to provide a $13.5 million cash payment and an additional $2.3 million in debt relief. That worked out to be roughly $42,000 per distributor.

Contact an Employee Misclassification Attorney

The distributors only achieved this success because they had the proof needed to persuade the court that the tool company misclassified them. When you've unpaid overtime and misclassification case is on the line, the right legal representation is essential. The experienced San Mateo employee misclassification attorneys at Galine, Frye, Fitting & Frangos, LLP are here to help. Our team of helpful attorneys has spent countless hours helping many workers just like you to get the compensation the law says they deserve. To set up a free consultation, contact us at 650-345-8484 or through our website.