​Misclassification in the workplace can result in substantial losses for an employer. Not only are employers on the hook for back pay, but the damages can include unpaid overtime, unreimbursed business expenses, payroll taxes, and a host of state and federal penalties. Businesses can protect themselves from misclassification lawsuits in a few ways.

Employee misclassification happens when an employer classifies an employee as an independent contractor. It enables employers to avoid costs associated with hiring someone as a regular employee, and they do not need to provide family leave, unemployment, or disability benefits to someone designated as an independent contractor. An independent contractor designation also enables employers to avoid adhering to the legal stipulations of hiring an employee. Unlike most civil cases, where a plaintiff sues defendants for a specific amount, the court in misclassification cases determines damages based on federal penalties and financial harm, which vary based on multiple factors.

Recent high-profile cases demonstrate the significant cost of a returned verdict in favor of a plaintiff to a company. The ridesharing/taxi company Lyft recently settled with the state of New Jersey, paying $19.4 million to resolve misclassification claims. The company misclassified drivers as independent contractors and would have continued to do so, except that New Jersey labor officials discovered discrepancies during an audit related to unemployment and disability benefits that some of its drivers had applied for. Ultimately, Lyft had to pay $10.8 million in unpaid unemployment, family leave, and disability taxes from 2014 to 2017, in addition to $8.5 million in penalties and interest.

However, back taxes, penalties, and interest are not the only costs a company may incur. For instance, employers can become liable for unreimbursed business expenses related to areas such as mileage, travel, tools, equipment, office supplies, or a portion of cell phone costs used for business purposes.

Companies can also become responsible for the value of lost employee benefits. These damages can include the amount the employer might have contributed to a 401 (k) or other retirement plans, health insurance premiums, and paid time off. The courts typically assess a value based on the fair market value of the benefits.

Payroll taxes also become an issue. Employees share the cost of FICA taxes with their employer, which contributes to the Social Security and Medicare trust funds. An independent contractor, however, must pay the entire amount themselves. If held liable, misclassified employees can seek damages for a portion of the FICA taxes they paid to the government.

Finally, as is the case with Lyft, companies that violate misclassification rules may also face penalties from both state and federal authorities. The Department of Labor (DOL) and the Internal Revenue Service (IRS) enforce these laws. Still, the DOL can assess fines of up to $1,000 per incident for minimum wage or overtime violations. In cases where the misclassification was unintentional, the IRS can assess penalties that include $50 for each unfiled Form W-2, 1.5 percent of a worker’s wages, a portion of FICA taxes, and other damages. The purpose is to punish the employer.

Factors that contribute to the amount an employer must pay include the duration of the misclassification, with longer periods resulting in higher amounts. Furthermore, if the verdict determines that the employee should have received a significantly higher wage, it can also increase the amount. If the courts find that the employer was willfully negligent or showed reckless disregard for the law, this can also result in significantly higher damages.

So, how can employers reduce the likelihood they finding themselves in court? Experts state that employers really should have a sound understanding of the difference between an employee and an independent contractor. Employees work under the supervision of an employer and receive their wages and benefits from that employer. Conversely, independent contractors receive their pay from clients, and they have more autonomy in their schedules and tools.

Employers can also take the initiative in establishing robust employee classification guidelines. These stipulations define each designation and distinguish between exempt and non-exempt employees. They should also outline how a company might correct misclassification errors.

Establishing compliance audits can also reduce the risk of misclassification, in addition to demonstrating to the courts that a system was in place in case an employee sues the company. These compliance audits identify and address misclassification issues by routinely reviewing job roles and contract agreements to ensure they align with legal mandates.

Experts also recommend training human resource managers to make them aware of the difference. Effective training programs may cover the legal definitions of employee classification and provide practical tips to ensure hires align with these definitions.

Employee classification is a complex landscape, one that an attorney can help employers navigate. While the costs of hiring an attorney are expensive, employers can face significantly higher costs if a court rules against them in a misclassification case.

​Wage and hour class actions are lawsuits brought by multiple employees against an employer for compensation-related violations. The Fair Labor Standards Act (FLSA), state wage and hour laws, and anti-discrimination laws are the common statutes under which plaintiffs can file their cases for compensation and justice. Over the years, the legal landscape has seen an increase in the number and scope of wage and hour class actions, reflecting a growing awareness of labor rights and the evolving complexity of modern employment.

The successful progression of a wage and hour class action depends on several factors. First, every class member must express concern about a common issue at the workplace. Next, the class must have multiple members to justify that individual lawsuits are impractical. Experts argue that mobilizing several employees minimizes legal fees and leads to more evidence being presented against an employer. Moreover, the interests of the class representatives (those selected to represent the entire class) must align with those of every other member.

Several violations lead to wage and hour claims. One such infringement is unpaid overtime. The FLSA obligates employers to compensate employees for any extra hours they put in every workweek, usually at a rate of one and a half times the regular pay rate. Class actions in this area focus on recovering compensation for affected employees.

Worker misclassification also attracts wage and hour class actions. Employers may classify some employees as independent contractors rather than full-time workers, thereby avoiding obligations (such as minimum wage) and benefits (like health insurance and pension). Class action seeks to correct misclassification and recover the affected employees’ wages.

Employers who fail to pay minimum wage may also face wage and hour class actions. State and federal laws mandate that every employee be paid at least the minimum stipulated wage for all hours worked. Off-the-clock work is a popular tactic that some employers use to violate minimum wage requirements. They require workers to perform tasks before or after official working hours without compensation.

Failure to provide meal and rest breaks can also lead to wage and hour claims. Employers should provide these breaks and compensate workers for missed breaks to avoid legal penalties.

In addition, pay discrimination can lead to wage and hour class actions. Employers offering different remuneration to employees performing similar tasks based on age, gender, race, or ethnicity are susceptible to lawsuits to recover the lost wages.

Wage and hour class actions have significant benefits that extend beyond the courtroom. They positively influence workplace practices, a company’s public reputation, and labor standards. When these lawsuits end in favor of the affected employees, they lead to corporate accountability. Employers understand that they will be held accountable for their actions and are prompted to rethink how they treat workers, their compensation policies, and their timekeeping systems. As such, wage and hour class actions lead to just and productive workplaces that favor employers and workers.

Organizations that face multiple lawsuits receive public attention and discourage top talent from applying for jobs. On the other hand, entities that have no wage and hour lawsuits gain a positive public image and can effectively attract and retain top talent, which is a significant source of competitive advantage.

Multiple successful class actions can lead to the reevaluation of labor laws and regulations. These lawsuits highlight areas where policymakers should focus and devise solutions to strengthen employee protection. Moreover, multiple cases can encourage scrutiny of similar organizational practices where workers may be vulnerable to labor violations, driving systemic change in specific industries.

Finally, wage and hour class actions empower employees and foster a sense of community. These legal proceedings and successful outcomes encourage workers to speak out against injustice and work together to hold employers accountable. Employees also gain a sense of responsibility for building a just, productive, and inclusive workplace.

​An employment contract is an agreement that stipulates the duties and obligations of the employer and the employee. An employment agreement has specific clauses that guide the relationship between both parties to the agreement.

One of the most important clauses in an employment agreement is remuneration. The remuneration clause itemizes how much the prospective employee will get paid. This clause itemizes how much the employee will get paid and determines whether wages will be separated from bonuses, overtime, and commissions.

Furthermore, an employment contract must contain a termination clause. The termination clause highlights the circumstances that might result in the employer losing their job. The termination clause explains the terms of the contract and whether it is a one-off contract or will be renewed. The termination might occur by operation of time, breach, and agreement.

Confidentiality, a non-disclosure agreement or clause, is an employment clause that seeks to protect the company’s data from being leaked. Most businesses adopt confidential clauses to protect their trade secrets.

​The Fair Labor Standards Act (FLSA) offers multiple protections for American employees against excessive work demands by employers. Beyond requiring employers to pay overtime rates, the FLSA protects employees from potential off-the-clock violations.

The term “off-the-clock” refers to any uncompensated time an employee spends working above and beyond their paid hours. Its definition extends to all activities that fall under the worker's job description and provide value for the employer.

Two of the most widespread off-the-clock violations are engaging in unpaid preparatory work before a shift or unpaid cleanup and finishing work after a shift. Doing paperwork, attending meetings, and performing other administrative duties are common forms of off-the-clock work.

When an employee makes a time-consuming mistake, the employer may want to recoup losses by making that employee fix or redo this work without pay. However, the action falls under an illegal off-the-clock violation, so is failing to pay workers for job time spent waiting for new assignments or projects to become available.

​In October 2023, California Governor Gavin Newsom signed off on several changes to state employment law. The following are three changes. 

First, the Governor has expanded restrictions on non-compete agreements. Employers cannot deny former employees the right to employment in a lawful trade, business, or profession. Failing to comply may result in civil penalties of $2,500 per violation.

Next, by no later than July 1, 2024, a majority of California employers need to implement Workplace Violence Prevention Plans. The plans will show how to report and respond to violent workplace incidents. In addition, employers must provide annual employee training on workplace violence-related topics and the plan.

Lastly, from the start of 2024, workers will receive five days of protected time off related to a “reproductive loss event.” Qualified events include stillbirth, miscarriage, failed adoption or surrogacy, and unsuccessful assisted reproduction. The law differs from the state’s bereavement leave law since employers will not have the right to request documentation confirming that such a reproductive loss event occurred.

​Based in Los Angeles, Daniel Chammas handles a wide range of defense assignments in the employment law sphere. Maintaining a strong interest in legal developments, Daniel Chammas provides representation that reflects the latest interpretations of state law.

In February 2023, the 9th Circuit Court of Appeals gave California employers a significant victory. Following three years of appeals, it affirmed a district court injunction in Chamber of Commerce v. Bonta that struck down Assembly Bill 51 (AB 51), for the reason that it is already covered under the Federal Arbitration Act (FAA). Created to promote arbitration agreements as a dispute resolution mechanism, the FAA has consistently been found by the U.S. Supreme Court to preempt state laws that seek to prevent arbitration agreements from being enforced.

Signed into law in 2020, AB 51 concluded five years of state efforts to legislate rules that stop employers from requiring that workers enter into arbitration agreements as a prerequisite of employment. With the most recent ruling in place, California employers continue to have the right to employ mandatory arbitration agreements, both for new hires and existing employees. They can also require employees to waive (conditional to employment) their rights to litigate claims under the California Labor Code and Fair Employment and Housing Act (FEHA).

​Daniel Chammas is a Los Angeles corporate defense attorney who provides employment law solutions across a range of industries. A skilled litigator, Daniel Chammas represents corporations in a range of class action defenses, including those involving wage and hour claims.

In general, wage and hour laws in California are more protective of workers than federal mandates and laws in most other states. In addition, the Unfair Competition Law (UCL) provides a consumer-protection route, independent of violations of the Labor Code, for plaintiffs to claim “fraudulent,” “unfair,” and “unlawful” business practices. The statute of limitations for UCL cases is four years, a year longer than Labor Code claims. Employees who win cases can recover attorneys’ fees, a privilege not afforded to employers.

Class actions exist as a way of handling the claims of multiple plaintiffs. It’s important to note that California workers have another option in Private Attorney General Act (PAGA) actions. These are not lawsuits brought by plaintiffs, but law enforcement actions on behalf of the state, related to labor violations claimed against employers. The filing procedures of PAGA actions require initially working with the California Labor and Workforce Development Agency, which has discretion to pursue the claim itself. Otherwise, the employee can file the PAGA suit on their own.

​Serving Los Angeles clients as a labor and employment defense attorney, Daniel Chammas delivers legal results across a range of industries, with a focus on employment law. Daniel Chammas maintains a close watch on legal developments, including the two-decade-long battle over the Private Attorneys General Act (PAGA).

Signed by Governor Gray Davis in 2003 as one of his last acts in office after being recalled near the start of a second term, Senate Bill 796 provides workers with a ready means of filing collective action suits against employers for claims related to violations of the state laws that dictate working conditions. This provided plaintiff attorneys and unions with a stronger hand in pursuing cases outside the California Labor Commissioner’s Office.

Since PAGA was instituted, unions and some trial attorneys have worked to expand the reach of the law, while business groups have remained steadfastly opposed. In 2018, the Supreme Court of California significantly expanded the potential impact of PAGA through restrictions on California employers’ ability to classify workers as independent contractors (who do not need to abide by state labor laws). This was codified in 2019 through Assembly Bill 5, which turned numerous contractors into payroll employees. In response, Uber and Lyft convinced state voters to make them exempt from the new classification rules.

PAGA’s potential scope was also expanded by Governor Gavin Newsom in 2022, with one law providing workers with the right of refusal to work, should conditions be unsafe, and another requiring that employers provide disclosure of wage scales to potential and current employees. In response to these expansions of PAGA, Californians for Fair Play and Accountability, a group of businesses and employers, has collected signatures that will place a measure that would repeal PAGA completely (while expanding state labor law enforcement) on the 2024 ballot.

​Daniel Chammas is an attorney based in Los Angeles, California. He graduated from Stanford Law in 1999 and has since worked as an attorney with various law firms in Los Angeles. Currently, Daniel Chammas works at Ford & Harrison LLP, handling various legal issues like wage and hour class actions and trade secret litigation for organizations.

Trade secrets are an organization's intellectual property containing confidential details about products and services. For example, formulas, special designs and processes, clientele lists, and inventions are some information companies can classify as trade secrets.

However, certain criteria must be met to classify any information as a trade secret. The first criterion is that the owner of the information has to prove that it has measurable commercial value because of its confidentiality. Next, the trade secret owner must prove they made conscious and consistent efforts to safeguard the information.

A company can protect its trade secrets by acquiring copyrights and patents or placing them under trademarks. They can also require their employees and other individuals with access to their trade secrets to sign contracts (such as non-disclosures, non-competes, and confidentiality agreements), preventing them from stealing or misappropriating whatever secrets they can access.

When a company has valid proof that its trade secrets have been accessed and taken by a person or another establishment without proper authorization, it can begin a legal process known as trade secret litigation to protect its interests. Organizations can also use litigation to seek reimbursement for any financial loss they suffer because of their trade secrets exposure.

​A skilled litigator with extensive experience defending companies against employment claims, Daniel Chammas is an attorney with Ford & Harrison LLP in Los Angeles. In this work, he focuses on collective actions alleging “off-the-clock violations,” missed breaks, discrimination, and employee misclassification. Attorney Daniel Chammas also represents companies in wage and hour class actions and PAGA (Private Attorney General Act) actions in Los Angeles and beyond.

Enacted in 2004, the Private Attorney General Act (PAGA) focuses on enforcing California's labor laws. Thanks to PAGA, employees who are victims of labor violations by their present or past employers can file a lawsuit against the employer to hold the employer accountable for the labor violation and help the state penalize the employer for the offense. Examples of labor violations are wages paid below the minimum wage rate, employee misclassification, discrimination, and missed breaks. PAGA claims are solely qui tam claims, which means aggrieved workers are essentially exposing labor law violators to penalties, without expecting compensation in return. They may, however, sue for civil penalties based on the California Labor Code.

Any aggrieved worker who seeks to pursue a PAGA claim must send a prior notification to their employee and the California Labor and Workforce Development Agency online within one year after the most recent labor violation by the employer occurred. The notice must include a partial or full summary of labor violation events, provisions of the violated state's labor laws, and a complete or partial list of aggrieved entities. They must send the notice to the employer by certified mail.

Sending the PAGA notice to the California Labor and Workforce Development Agency allows the agency to investigate the claim within 65 days. The agency may intervene within 65 days of receiving the notice. If the agency does not intervene, the aggrieved employee may proceed to file a lawsuit against the employer. The employee has 60 days to file the lawsuit, during which they may include other applicable violations by the employer.