The Most Common Employment Violations Amongst Korean Business Owners
- KACPA
- Aug 20
- 6 min read
[B. Christine Park, Esq.]
“The Most Common Employment Violations Amongst Korean Business Owners -- Misclassification of Non-Exempt Employees as Exempt Independent Contractors, Managers, or Executives”
One of the most common employment lawsuits I encounter amongst Korean businesses is their failure to pay hourly wages, including overtime wages, by misclassifying their employees as exempt when they are not. This can easily cost the employer tens to hundreds of thousand dollars in legal fees (for both sides) and monetary damages. Sometimes an expensive misclassification lawsuit can force the employer to close business. An accountant or tax advisor can help to prevent such costly lawsuits for their clients.
Many business owners misclassify their non-exempt employees as exempt, and violate California Labor Code. This frequently happens when the employer (1) misclassifies an employee as an independent contractor; or (2) a non-exempt employee as an exempt administrative employee or executive employee. The immediate benefit to the employer is that the employer does not have to pay hourly wages, including overtime wages (as exempt employees are paid in salaries), and in the case of an independent contractor, avoid providing employee benefits such as insurance and the employer’s portion of taxes.
However, an employer can face severe penalties for misclassifying employees, whether as independent contractors or as exempt administrative or executive employees. The employee’s job title does not matter; what truly matters is the nature of the work performed. Failure to comply with these laws can result in lawsuits and significant monetary damages, including:
● Overtime and double-time wages;
● Penalty for unpaid wages (up to one month’s wage);
● Penalty for providing inaccurate wage statements (up to $4,000);
● Penalty for misclassification of employees: California law allows civil penalties to be charged to employers that intentionally misclassify workers. The fine can range between $5,000 and $15,000 per violation, and if there is a pattern of willful misclassification, the courts can fine employers an additional $10,000 to $25,000;
● Unpaid wages if employer failed to provide meal and rest breaks (one hour of pay for each meal break violation per day and one hour of pay for each rest break violation);
● Restitution and disgorgement of profits for violations of The Unfair Competition Law (California Business and Professions Code § 17200 et seq. prohibits acts of “unfair competition,” including any unlawful, unfair, fraudulent or deceptive business act or practice); and/or
● Attorney’s fees for the employee’s attorneys; employers can be liable for significant attorney’s fees in addition to their own.
I. Misclassification of an Employee as an Independent Contractor.
Employers should be cautious when classifying employees as independent contractors. A fundamental question to ask is, “Is this the type of worker this business usually employs to achieve its business goals?” For example, a supermarket regularly employs cashiers, so a cashier should be classified as an employee. Conversely, if the supermarket needs someone to paint the walls, the painter may be hired as an independent contractor since the supermarket does not routinely require painting services.
In California, the distinction between an independent contractor and an employee is primarily determined by the "ABC test," established by Assembly Bill 5 (AB 5) in 2019. Here’s how it works:
A - Autonomy: The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both in contract and in fact.
B - Business: The worker performs work that is outside the usual course of the hiring entity's business.
C - Independently Established: The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
To be classified as an independent contractor, you must meet all three criteria. If you do not meet any of them, you are likely considered an employee. The following are additional factors to consider:
Control: How much control does the employer have over the work being done? More control suggests an employee relationship.
Benefits: Employees typically receive benefits such as health insurance, paid time off, etc., whereas independent contractors do not.
Taxes: Employees have taxes withheld from their paychecks, while independent contractors handle their own taxes.
If uncertainty persists, employers can refer to common law factors used by California courts:
(1) Who has the right to control the worker’s manner and means of performing his or her duties – an independent contractor has more control over the day-to-day details of his or her job than an employee;
(2) The skill required in the worker’s job – independent contractors often perform highly skilled jobs;
(3) Whether the worker is engaged in a distinct business or occupation – if the worker is engaged in a distinct business or occupation, it is more likely the worker is an independent contractor;
(4) Whether the work is done under supervision – the more an employer is directly supervising the worker, the more likely he or she is an employee;
(5) Whether the worker can be discharged at will or for cause – allowing discharge at will often weighs in favor of an employer-employee relationship;
(6) Who supplies the tools, instrumentalities and place of work – if the worker supplies these, he or she is more likely an independent contractor;
(7) The length of time the services are to be performed – short and discrete jobs are generally performed by independent contractors;
(8) The method of payment, whether by time or by the job – payment by time generally signals an employee relationship; and
(9) Whether the parties subjectively believe they are creating an employer-employee relationship.
(See S. G. Borello & Sons, Inc. v. Dep’t of Indus. Relations, 48 Cal.3d 341, 350-51 (1989).)
If more factors indicate that the worker is an employee, they should be classified accordingly and compensated with the proper wages and benefits.
II. Misclassification of a Non-Exempt Employee as an Exempt Administrative or Executive Employee.
Many employers misclassify their non-exempt employees as exempt and pay them a monthly salary, failing to track their work hours and pay the required overtime and double-time wages. This constitutes a violation of California labor law. A common mistake occurs when an employer classifies a worker as a “manager” or executive, even when the worker performs less than 50% of managerial or executive duties.
(a) Exempt Administrative Employee Test:
In California, whether an employee qualifies as an exempt administrative employee is determined by several factors, primarily outlined in the California Labor Code and related regulations. Here are the key considerations:
Primary Duties: The employee's primary duties must involve the performance of office or non-manual work directly related to management or general business operations. This can include tasks like policy development, business strategy, and other high-level functions.
Discretion and Independent Judgment: The employee must regularly exercise discretion and independent judgment in significant matters. This means they make important decisions without immediate supervision.
Salary Threshold: The employee must meet the minimum salary threshold, which is adjusted annually. As of 2024, the minimum salary for exempt employees is typically at least twice the state minimum wage for full-time employment.
Regularly Required Duties: The employee's work should not be primarily related to manual labor, production, or routine tasks that can be performed by non-exempt employees.
Type of Industry: Certain industries might have specific regulations or additional criteria for exemption status.
Job Title and Description: While titles alone do not determine exempt status, the job description and actual duties performed are crucial in making this assessment.
(b) Exempt Executive Employee Test:
Similarly, many employers misclassify workers as exempt executive employees and pay them a salary rather than hourly wages with applicable overtime. In California, the following criteria are key:
Primary Duties: The employee’s primary duties must consist of managing the enterprise or a recognized department or subdivision of the enterprise. This includes overseeing staff and having authority over business operations.
Supervision of Others: The employee must regularly supervise two or more full-time employees or their equivalent. This involves having the authority to hire, fire, or make recommendations regarding these actions.
Decision-Making Authority: The employee must have the ability to exercise discretion and independent judgment regarding significant business matters. This could include making important decisions that affect the company.
Salary Requirement: The employee must earn a minimum salary that is at least twice the state minimum wage for full-time work. This threshold is updated annually.
Type of Work: The work performed must be primarily of a managerial nature, not involving tasks that can be delegated to non-exempt employees.
Job Responsibilities: The employee’s role should include tasks like strategic planning, policy formulation, and operational management, rather than routine or manual work.
These concepts are complex legal matters. An accountant or tax advisor can identify potential violations and refer clients to an employment law attorney for detailed evaluation, and help to prevent serious and costly lawsuits. A typical employment lawsuit can cost the employer at minimum of tens to hundreds of thousand dollars in payment of legal fees (for both sides) and monetary damages.
B. Christine Park, Partner
JKLAWUSA, APC
3435 Wilshire Blvd., Suite 400
Los Angeles, CA 90010
(323) 578-6957
