The California Labor Code sets minimum standards for how employers in the state must pay their employees. And without a doubt, it visits upon non-complying employers some heavy-duty financial penalties. For example, Labor Code §201 requires that an employer immediately pay a discharged employee her wages, and §203 provides that when an employer “willfully” fails to do this, the employee’s wages “shall continue as a penalty” from the discharge date for up to thirty days.

Those penalty wages can really add up. Recently, a photoshoot model sued Walmart, alleging that she had worked for the retail giant sporadically for 15 days and was not paid her wages immediately at the end of each session. Her lawsuit sought $540,000 in penalties under Labor Code §203.

Walmart’s defense to the suit was a fundamental one: These Labor Code provisions apply only to “employees”—but the plaintiff was instead an independent contractor or, at the very least, Walmart reasonably and honestly believed she was. The distinction is a critical one in labor law. Many workplace rights (such as laws establishing minimum wages and working conditions) apply only to bona fide employees, not contractors.

The determination of whether a worker is an employee or contractor is not always easy. Under a test established by the California Supreme Court in 1989, courts look to a number of factors to decide the issue. The most important is “whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired.” Other factors include “whether the one performing services is engaged in a distinct occupation or business;” and “whether or not the work is a part of the regular business of the principal.”

Thus, for example, workers regularly engaged to perform shoe shine work for a company engaged in the business of shining shoes for its customers are most likely employees. The company controls their performance of the work; the workers are not engaged in freelancing; and the work they perform is the regular business of the company. On the other hand, a man who rents space to shine shoes in an airport is likely not the employee of that airport. The airport does not seek to control the manner in which he performs the shines; he may shine shoes in other locations; and the provision of shoe shines is not the regular business of an airport.

As to the photoshoot model, the facts were that Walmart instructed the model regarding her clothing, hair, nails, makeup, and general appearance. Walmart also told her how to pose. These facts indicate an employment relationship. On the other hand, the model paid many of her own expenses and provided modeling services for other companies at the time. She was free to decline any bookings from Walmart. In addition, taking photographs of models is not the regular business of Walmart.

Walmart unsuccessfully sought to obtain summary judgment against the plaintiff on the basis that she was not an employee. It did, however, obtain summary judgment on the basis that it had a “good faith” belief she was, and the Ninth Circuit affirmed. The presence of good faith will exonerate an employer from the harsh penalties of §203 because that statute prohibits only the “willful[]” failure to pay the wages. Accordingly, as the pertinent regulations provide, “a good faith dispute that any wages are due will preclude imposition of waiting time penalties” under the statute. Thus, while Labor Code penalties can indeed be severe, at least in this case the employer who acts reasonably in concluding that a worker is not an employee is insulated from those penalties.