Misclassification (Employee vs. Contractor)

The practice of categorizing workers as independent contractors rather than employees, depriving them of wage and hour protections, benefits, and the right to organize under federal and state law. Misclassification cases have become a major litigation finance opportunity, particularly in the gig economy, where the scale of affected workers and the systemic nature of the classification decision produce large aggregate damages. Funders evaluate the applicable economic reality test or ABC test under state law, the employer's degree of behavioral control, and recent regulatory and judicial trends in the relevant jurisdiction.

Because misclassification cases can affect entire categories of workers under a single companywide classification decision, funders treat them as some of the highest-leverage employment investments available, provided the applicable state test — economic reality or ABC — favors reclassification on the specific facts. Funders track state-by-state regulatory and judicial trends on the ABC test closely, since a jurisdiction's stance on the test can single-handedly determine whether an otherwise identical gig-economy fact pattern is fundable.