Matco Tools Settles California Misclassification Lawsuit for $15.8 Million

San Francisco, CAOn April 29, the Northern District of California granted final approval to a $15.8 million settlement in a class action California labor lawsuit brought by 273 franchisees who claimed that Matco Tools classified them as independent contractors to avoid paying overtime, reimbursing expenses and providing accurate wage statements. The deal includes a $13.5 million cash payment. Distributors who terminated their distributorships on or before September 8, 2021, may also share in a fund that provides $2.3 million in debt relief.

Each class member is expected to receive nearly $35,000 in cash. The net total net value for those also entitled to debt relief will be roughly $42,000 per person.

The company has also agreed to amend its distributorship agreement to give further rights for continuing distributors. These will include the right to sell non-Matco products that do not compete with the company’s own products.

Franchisees tightly controlled

John Fleming brought this California labor lawsuit in 2021. He alleged, among other things, that he worked roughly 20 hours of overtime each week. His Complaint further describes a distributorship agreement that required franchisees to:

• pay an initial fee to Matco;
• distribute only approved Matco brand tools using the Matco system;
• attend Matco's "New Distributor Training Program," which included sixty hours of classroom training and an additional eighty hours of field training. They were required to pay for travel and hotel costs associated with the trainig;
• lease or purchase a Matco Truck with "MATCO TOOLS®" branding, and make that truck available for company inspection;
• wear Matco branded uniforms; and
• operate the Matco truck only within a company-identified territory.

Despite tight company control, Fleming and other distributors were treated as independent contractors, not eligible for overtime or benefits.

What is the difference between an employee and an independent contractor?

In general, the difference between independent contractors and employees depends on whether or not the entity paying for services has the right to control or direct the manner and means of work. This suggests an employment relationship. On the other hand, if an individual has independently made the decision to go into business for himself or herself (especially if the individual has other clients), this suggests an independent contractor relationship. The determination is very fact-specific.

As codified in California labor law , a worker is presumed to be an employee entitled to the protections California law, including overtime and benefits, unless all three of the following conditions are satisfied:

• The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;
• The worker performs work that is outside the usual course of the hiring entity’s business; and
• The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

California law tilts heavily in favor of finding that workers are, in fact, employees. Since Fleming v. Matco Tools settled, the case sheds no new light on how the law should be applied to the particular facts of any situation.

However, California workers who have reason to believe that they have been misclassified have reason to be heartened by the result. Although circumstances vary, it is generally financially better for workers to be classified as employees.

Telltale signs that you may be misclassified as an independent contractor

Here are five signs that you may be losing out on overtime and other benefits because your employer has misclassified you as an independent contractor and that you really should be treated as an employee:

• Your employer/client determines your location, your hours of work and how you do assigned tasks. Most independent contractors can decide how and when to work. If you are working on a schedule and/or at a location set by someone else who determines how you do your job, you may be an employee.
• You do not have a set end date, but are to continue to do your tasks for an indefinite time. Most independent contractors are hired for a particular project that has a set beginning and end date.
• Your tools and equipment are supplied by your client/employer. Independent contractors tend to have their own equipment.
• What you do is indistinguishable from what full-time employees do. If it looks just like what employees do, you are probably also an employee.
• You do not have your own “book of business” that includes more than one client, or you are prohibited from working with other non-competing businesses.

If you suspect that you are misclassified as an independent contractor, especially in California, where the law is very employee-friendly, it may be time to seek legal assistance in order to get the compensation and benefits you deserve.