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My job wants to change me from W2 employee to 1099 independent contractor so they don't pay CA payroll tax. What are my rights?

San Diego, CA |

I am a clinical research associate in CA and my company is based out of Ohio. They told me they no longer want to conduct business in CA due to new tax codes, so in order to keep my job, they are asking me to sign a independent contractor agreement as a 1099 employee. I need to know what my rights are regarding termination and IF I negotiate the contract, what issues should I address or include in the agreement? They will not put in writing that I am terminated if I don't sign the contract, however they keep saying they are not trying to end my employment; they value me as an employee and have every intention of retaining my services, so they really want me to sign the contract and continue to work for them, just as I have for the past 5 years. What do I do?

Attorney Answers 4


  1. Call an employment law attorney in CA to discuss. Neither you nor the company decides if you are or are not an indep. contractor or employee. The law does. It depends on an analysis of your duties and the amount of control the company has over your work. It is unlawful for any employer to misclassify an employee as an indep. contractor to avoid the "burden" on employers. Don't sign anything until you consult with an employment law attorney. If you are an employee, you are eligible for many rights under CA labor laws; if you are an indep. contractor, you are not eligible for those rights, including unemployment compensation, workers' compensation , etc., etc. Call an employment law attorney to discuss.


  2. I can't tell you what to do; that's a personal decision, not a legal one. What I can tell you are the general principles of law that govern your situation. Armed with that information, you can make an informed decision.

    California assumes that you are an employee, not an independent contractor. It is up to the employer to prove that you are an IC, and the fact that they previously treated you as an employee means that you likely are. (By the way, the correct terms are "employee" and "independent contractor." There is no such thing as a 1099 employee.)

    It could be illegal for them to let you go if (1) you are in fact an employee, and (2) you refuse to sign a IC agreement. That would be firing you for asserting your rights as an employee, and it would be illegal to do so.

    Having said that, you may decide that you'd rather have a job than a lawsuit. It will be up to you to determine what the right course of action is here. Of course, if you took the job as an IC, and later could prove that you were an employee (i.e., "later" meaning when you have another job), you might be able to redress your issues with them once you're safely in a new job.

    Good luck, and I hope you can resolve this matter to your satisfaction.

    Sincerely,
    Craig T. Byrnes
    www.ctblawfirm.com

    Disclaimer: Please be aware that I am not offering legal advice, nor forming an attorney-client relationship with you. I am not representing you, nor doing anything to protect your legal rights. If you believe that you have suffered a legal wrong, take action before any statute or limitations expires, or your right to do so may be lost forever. Good luck in your legal matter.


  3. You have already received two good and wise responses. I simply supplement as follows:

    You do not face serious tax consequences for being mischaracterized as an independent contractor as long as you pay all of your taxes. If you operate as a true independent contractor and pay yourself and contribute to Social Security, Unemployment and SDI, you will also see no adverse consequence. However, if you do not pay your quarterlies for tax withholding, or of you do not contribute to those other services, you will find that you will have tax issues at tax time, and you will not have unemployment insurance, or state disability insurance if you need it. Also, if you are not contributing to the SSA, you are reducing your ultimate SS payout.

    That said, if your continued cash flow from this company is important enough to you, you can decide to work for them as a mischaracterized independent contractor without other significant repercussions. You can even keep good records and later sue the employer for failing to properly characterize you as an employee if you suffered financial loss as a result of this change.

    In short, you do not need to threaten your cash flow from this job right now, as long as you go into it knowing your options and responsibilities.

    Good luck to you.

    This answer should not be construed to create any attorney-client relationship. Such a relationship can be formed only through the mutual execution of an attorney-client agreement. The answer given is based on the extremely limited facts provided and the proper course of action might change significantly with the introduction of other facts. All who read this answer should not rely on the answer to govern their conduct. Please seek the advice of competent counsel after disclosing all facts to that attorney. This answer is intended for California residents only. The answering party is only licensed to practice in the State of California.


  4. You have three great answers already that address strategy, practicality and consequences. I write to add a description of the relevant law for your further information.

    The main issue in determining who is an employee and who is an independent contractor is who controls your work. The general rule is that a person is an independent contractor if the employer has the right to control or direct the RESULTS of the work but not HOW the work is done or even WHAT work is done.

    Many employers misclassify workers as independent contractors and pay them as "1099 employees" when in fact they should be classified and paid as regular W-2 employees. Employers receive a substantial benefit from doing this, but there is NO benefit to the workers. If you are wrongly classified as an independent contractor instead of an employee, you will not be eligible for many benefits of employment or your eligibility will be reduced. Areas affected include the right to:

    – be paid for all hours worked or controlled by the employer;
    – the legal minimum wage;
    – overtime pay;
    – rest and meal breaks;
    – workers' compensation insurance;
    – Social Security contributions;
    – unemployment benefits;
    – state disability benefits;
    – employer benefits such as vacation, sick leave, pension, medical insurance, etc.

    Also, in some states, including California, employers are subject to a penalty if they misclassify employees as independent contractors (see below).

    There are different ways to determine if a worker is an employee or independent contractor. Employers must comply with all relevant laws.

    FEDERAL TAX LAW: The Internal Revenue Service (IRS) looks at three areas to determine a worker’s status:

    Behavioral Control: This area considers instructions and training. If the employer has the right to direct or control your work, even if it does not exercise that right, you are an employee. Therefore, if your employer gives you detailed or extensive instructions on how to get the job done, you are probably an employee and not an independent contractor. These instructions might include when to do the work, or how and where to do it; what equipment or tools to use; who you can hire or not hire to help you; what supplies and services to buy, and/or where to buy them. If the employer trains you in required methods of doing the work or the procedures to get the work done, this is evidence the employer wants things done its way, which indicates you are an employee and not an independent contractor.

    Financial Control: This area considers who has the right to direct and control the business, not just the work. The more of a financial or promotional investment you have made in the work, the more likely you are an independent contractor. However, there is no requirement for an investment in order to meet the definition of independent contractor. If you incur expenses in performing the work but are not completely reimbursed, you are more likely to be an independent contractor rather than an employee, especially if these expenses are high. If you have the chance to make a profit or loss on the work, you are probably in business for yourself and therefore an independent contractor.

    Relationship of the Parties: If you do not receive benefits such as medical coverage, vacation, or pension, you may be an employee or an independent contractor. However, if you receive benefits, you are probably an employee.

    (continued in Comment below)

    twitter.com/MikaSpencer *** All legal actions have time limits, called statutes of limitation. If you miss the deadline for filing your claim, you will lose the opportunity to pursue your case. Please consult with an experienced employment attorney as soon as possible to better preserve your rights. *** Marilynn Mika Spencer provides information on Avvo as a service to the public, primarily when general information may be of assistance. Avvo is not an appropriate forum for an in-depth response or a detailed analysis. These comments are for information only and should not be considered legal advice. Legal advice must pertain to specific, detailed facts. No attorney-client relationship is created based on this information exchange. *** Marilynn Mika Spencer is licensed to practice law before all state and federal courts in California, and can appear before administrative agencies throughout the country. She is eligible to represent clients in other states on a pro hac vice basis. ***

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