Willful Misclassification

courtroomIt is not uncommon for staffing companies serving as the employer of record to be sued along with the client company where that worker provided services. The typical claims made in these types of suits relate to joint employment liability for wrongful termination, discrimination and retaliation claims.  For example, a worker may claim that he or she was subjected to discrimination on the basis of his/her ethnicity because the client company treated him/her in a materially less-beneficial way than non-Caucasian workers.

A relatively recent addition to these types of standard claims concerns the “willful misclassification” penalties found in California Labor Code Sections 226.8 and 2753, enacted in 2012.  Some attorneys are claiming that the employer of record/temporary staffing model, in and of itself, somehow violates these misclassification statutes because the staffing company and the client company are engaging in an effective conspiracy to deprive workers of compensation and benefits that would otherwise be owing to them had the client company hired them directly as their employer.  In other words, even though there is no actual misclassification in the sense of a worker being improperly classified and paid as a 1099 as opposed to a W-2, the argument is that the employer of record construct is simply an artifice and a scheme that has the effect of depriving workers of compensation and benefits which are otherwise required in a direct employment relationship.

This argument seems to be a bit of a stretch  because the statutes do not mention the possible applicability to situations where there is an actual employer-employee relationship, i.e. where a worker is not and has not been classified as an independent contractor.  And except in instances of ambiguity, material terms are not be to added or read into statutes when interpreting statutes under controlling law.  Nonetheless, we will have to see how the issue plays out in the courts before providing a definitive assessment.

Denis S. Kenny
Denis Kenny is a labor and employment attorney and founding partner with Scherer Smith & Kenny LLP. He works with the Populus Group. He can be reached at denis (at) sfcounsel (dot) com.

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