How to Sue Your Employer for Misclassification

Worker misclassification is an offense committed by employers who take advantage of their workers and try to underpay them. Various state and federal laws are in effect to protect workers from being misclassified. Common questions workers ask are how do I know if I’m misclassified as exempt from overtime under the FLSA and shouldn’t I be entitled to overtime?

There are generally two types of misclassifications that can give rise to legal action. The two types are 1) independent contractor vs. employee under the IRS economic realities test and/or the state standard and 2) exempt from overtime vs. non-exempt from overtime under the FLSA and the state wage and hour laws. A misclassified worker may not receive all the benefits they’re entitled to, their minimum pay, and overtime that a properly classified employee would be entitled to. An employment attorney can help employees evaluate and when appropriate contest these misclassifications and help recover the unpaid wages plus liquidated damages, as well as attorneys’ fees and costs.  In some states the worker might be entitled to triple damages

The Fair Labor Standards Act (FLSA)

The importance of determining whether a worker is an independent contractor vs. an employee is due to the protections afforded under the Fair Labor Standards Act (FLSA) which entitles an employee to overtime pay at a premium if they work over 40 hours in a workweek. When a worker is misclassified the employer often attempts to circumvent the FLSA and not pay a premium for overtime.

The FLSA was enacted in 1938 under Franklin D. Roosevelt. The law established the first federal minimum wage, which is still in effect but has risen considerably (although some states and localities may set higher minimum wages than the FLSA provides). The FLSA also introduced the concept of overtime pay. Under the FLSA, employees are guaranteed the right to overtime pay if they work over forty hours, however, independent contractors are not. In addition, independent contractors are responsible for paying their own employment taxes in contrast to an employee where the employer pays a portion of the taxes. The determination of whether a worker is an employee vs. an independent contractor can result in a significant difference in a worker’s financial income.

The Economic Realities Test

A worker who is classified as an independent contractor despite truly being an employee can suffer from the lack of protections regarding earning minimum wage, overtime pay, and benefits that the government specifies that employees are entitled to. To determine whether a worker is an employee vs. an independent contractor under the FLSA, the federal courts use a test known as the economic realities test. The economic realities test is composed of various factors that allow for the legal determination as to the status of a worker. Various states like California and New Jersey may have additional protections that go far beyond the federal laws to protect workers and ensure they are classified properly. The factors regarding economic realities include but are not limited to:

• The amount to which the employer controls the worker.
• Whether the worker was required to put in his/her own financial investment for equipment/materials.
• The degree of skill required for the work.
• Whether the arrangement was temporary or permanent in nature.
• The degree to which the work made up the essential functions of the business.
• Whether the worker could also work for another company at the same time.
• Whether the worker was free to refuse an assignment.

Exempt vs. Non-Exempt Employees

The FLSA also comes into play in the distinction between exempt vs. non-exempt employees. Exemption refers to whether an employee falls under the requirements of the FLSA. If an employee is “exempt” from the FLSA, then they do not qualify for overtime pay and/or minimum wage laws. However, to qualify as an exempt employee, the Department of Labor has three general tests that the employee must satisfy:

• Salary Basis Test: To meet the salary basis test for an exemption, an employee must be paid on a salary basis (i.e., a fixed amount each pay period regardless of the number of hours worked).
• Salary Level Test: For the exemption, the employee must meet the minimum salary level threshold (i.e., as of July 2024, $884/week and $43,888 annually and scheduled for January 2025, $1,128 a week or $58,656 annually)  Please note that with the United States Supreme Court recently reversing the Chevron deference document, it is unclear whether moving forward that the Department of Labor will have the authority to unilaterally change the minimum salary requirements without congressional approval.
• Duties Test: In order for an employer to claim an exemption, the employee’s job duties must primarily involve executive, administrative, professional, computer, or outside sales work or invoke another recognized exemption from overtime:
• • Executive Exemption: The employee’s primary duty is managing the business (or subdivision thereof) and directing the work of at least two other full-time employees. They must also have the authority/input in hiring or firing employees.
  • Administrative Exemption: The employee’s primary duty is office or non-manual work of significance that directly related to management or general business operations.
  • Professional Exemption: This applies to employees whose work requires advanced knowledge through academic study (e.g., doctors, lawyers, engineers) or creative skills (e.g., artists, writers, directors).
  • Computer Employee Exemption: Applies to employees with science, technology, engineering, and computer-related duties, such as systems analysis, programming, or software engineering. Some states don’t recognize this exemption or significantly pare it down like Pennsylvania and Massachusetts.
  • Outside Sales Exemption: Covers employees whose primary duty is making sales or obtaining orders or contracts for services outside of the office.

Common Misclassification Schemes

There are various ways in which a worker is misclassified.  Some common situations include:

• Job duties do match exemption criteria – A “manager” title is not enough to meet the criteria for exemption. The worker’s duties must meet one of the duties tests (as listed above) and generally control the work and direction on a daily basis of 2 or more employees, as well as have the power to hire, fire, discipline and review the subordinate employees. One telling sign of a misclassification scheme is if the job title of the worker artificially injects the word “manager” when they are not managing any people, such as “apartment manager” “phone manager” or “file manager”
• Work consists of non-exempt work – Even if the official duties based on the job description are those of an exempt employee, if the worker’s actual work consists of mainly non-exempt work, then the employer may be responsible for providing the employee with the overtime pay and minimum compensation that a non-exempt employee would rightfully be entitled to.
• Misclassification in IT – Tech workers are often assumed to automatically be considered exempt workers. However, if their work does not require advanced or technical skill the employee is often improperly classified.
• Improper Classification of Sales – Likewise, salespersons only meet the outside sales exemption if they conduct their work outside of the office. A salesperson who primarily works hours in the office would most likely be improperly classified. Also, the nature of the pay of the worker whether its 100% commission based or some sort of salary or hourly may be important to understand to determine if the classification is proper.

How to Sue an Employer for Misclassification

The law is often a complicated beast and to navigate it is best to consult with an employment attorney who focuses on misclassification cases. A skilled attorney can help guide you in the evaluation of your case and determine the best course of legal action to take. In some instances, the given facts of a case will not warrant a lawsuit, and in others they do. It is best to consult with a dedicated employment law firm to help determine if your case has the requisite strength to potentially succeed in litigation.

Moreover, experienced employment attorneys are well equipped to properly organize the facts of a wage and hour case and file a complaint in the appropriate court. In addition to the FLSA, there are a number of state wage and hour laws, some of which include treble, or triple damages, meaning that a plaintiff may receive significantly more in awarded damages than they are owed. Further, wage and hour lawyers and overtime law firms add value to the process as crafty defense attorneys may seek to undermine cases without skilled counsel.  The value is considerable especially when sophisticated misclassification law firms like Brown, LLC whose attorneys have tried misclassification cases to verdict in state and federal courts all over the country are only paid if they win your case and on top of it offer free, confidential consultations.