Employee Misclassification in California: What Workers Need to Know

Why Worker Classification Matters

In California, one of the most important issues in employment law is the difference between an employee and an independent contractor. The label matters because employees are legally entitled to protections such as minimum wage, overtime pay, meal and rest breaks, workers’ compensation, unemployment insurance, and protection from wrongful termination. Independent contractors do not receive these rights.

Unfortunately, many employers misclassify workers as independent contractors, often to save money. California law now has some of the toughest worker classification rules in the country, giving employees more leverage to fight back.

The ABC Test under California Law

In Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal.5th 903, the California Supreme Court established the ABC Test, later codified in Labor Code § 2750.3 (AB 5). Under this law, a worker is presumed to be an employee unless the hiring company can prove all three of the following:

A. The worker is free from the control and direction of the hiring entity in performing the work.
B. The work performed is outside the usual course of the hiring entity’s business.
C. The worker is engaged in an independently established trade or business.

If the employer fails any one of these prongs, the worker must be classified as an employee.

Signs of Misclassification

If your employer calls you a contractor but still:

• Sets your hours or requires you to work a 9–5 schedule
• Directs how your work must be done
• Provides the tools, office space, or equipment
• Prevents you from working for other clients

…then you may actually be an employee under California law. A written agreement calling you an “independent contractor” is not enough if the working relationship says otherwise.

Penalties for Employers Who Misclassify Workers

Employers who misclassify workers face significant legal and financial consequences. These include:

• Unpaid wages, overtime, and missed meal/rest break penalties (Lab. Code §§ 510, 512, 226.7, 1194)
• Back payroll taxes, workers’ compensation premiums, and unemployment insurance contributions
• Civil penalties of $5,000–$25,000 per violation for willful misclassification (Lab. Code § 226.8)
• Lawsuits under the Private Attorneys General Act (PAGA) (Lab. Code § 2698 et seq.)

Exempt Professions

Not all professions are subject to the ABC Test. Licensed attorneys, doctors, accountants, real estate agents, and certain creative professionals are evaluated under the older Borello test (S.G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341), which looks at multiple factors rather than a strict three-part standard.

What Workers Can Do if Misclassified

If you believe you are misclassified, you have several options:

• File a wage claim with the California Labor Commissioner
• File a civil lawsuit for back wages and penalties
• Bring a PAGA claim for systemic violations
• Report misclassification to the Employment Development Department (EDD) or other state agencies

Key Takeaway for California Workers

California law favors employees, not employers, when it comes to classification. If your boss controls your schedule, directs your tasks, and prevents you from working independently, you are likely an employee, not a contractor. Misclassification is illegal, and workers have rights to recover lost wages, penalties, and benefits.

If you suspect misclassification, consult an employment lawyer in California to protect your rights.

⚖️ Disclaimer: This article is for informational purposes only and does not constitute legal advice. For a free consultation with Attorney Thomas M. Lee, please call (213) 251-5533