Overtime and Misclassification in California

The test for whether a worker is an independent contractor or an employee is whether the employer has the right to control the manner and means of the worker’s performance.  S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341, 349–351.  A number of different factors contribute to the extent of control that an employer exercises over its workers: (1) the right to discharge at will, without cause; (2) whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work; (3) the length of time for which the services are to be performed; (4) the method of payment, whether by the time or by the job; (5) whether the one performing services is engaged in a distinct occupation or business; and (6) whether or not the work is part of the regular business of the principal.  Id.

Pursuant to California Labor Code section 510, employees are entitled to overtime compensation for hours worked over 8 per day and 40 per week.  Overtime compensation is 1.5 times an employee’s regular rate of pay for hours worked between 8 and 12 hours per day and over 40 per week, and double the regular rate for hours worked over 12 per day.  In the absence of an established hourly rate, the regular rate of pay for the purposes of calculating overtime compensation is calculated based on an 8-hour day. In the absence of accurate time records, the amount of overtime is based on the testimony of each individual employee, which is presumed to be true.  Anderson v. Mt. Clemens Pottery Co. (1946) 328 U.S. 680, 687–88; Hernandez v. Mendoza (1988) 199 Cal.App.3d 721, 727–728.

Overtime claims carry with them a four-year statute of limitations.  Sullivan v. Oracle Corp. (2011) 51 Cal.4th 1191 (UCL, which carries four-year statute of limitations, provides remedy for failure to pay wages). Overtime compensation violations give rise to various statutory and civil penalties.  Labor Code § 226 provides for a statutory penalty to employers who knowingly and intentionally fail to report wages earned on their employees’ paystubs.  Labor Code §§ 201 and 203 provide for a statutory penalty to employers who wilfully fail to pay to their employees all wages earned immediately upon termination.

Various civil penalties are recoverable through the Labor Code Private Attorneys General Act (Lab. Code § 2698 et seq.) (“PAGA”).  Labor Code § 2699 provides for a penalty for a violation of any Labor Code provision, unless another penalty is already provided.  Labor Code § 210 provides for a penalty for non-payment of wages.  Labor Code § 558 provides for a penalty for any violation of the Industrial Welfare Commission Wage Order, which requires, inter alia, that employers pay overtime compensation.  Labor Code § 226.3 provides for a penalty for wage statement violations.  Finally, Labor Code § 226.8 provides a $5000–$15,000 civil penalty per worker who is misclassified as an independent contractor.

The Private Attorneys General Act (“PAGA”) also permits an employee to bring a representative action on behalf of other similarly aggrieved employees.  The statute of limitations on PAGA penalties is one year. 

Labor Code § 1102.5 prohibits retaliation against an employee who reports illegal activity to her employer or a government agency.  Furthermore, California common law prohibits an employer from terminating an employee in violation of public policy.  See Tameny v. Atlantic Richfield Co. (1980) 27 Cal.3d 167.