Misclassified workers in California

Cal. Lab. Code § 2775, enacted as AB 5, provides that a person providing labor or services for remuneration is considered an employee rather than an independent contractor unless the hiring entity demonstrates all three conditions of the ABC test. The presumption, not the paperwork, is the starting point.

The three conditions come from Dynamex Operations West, Inc. v. Superior Court, 4 Cal. 5th 903 (2018): (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; and (C) the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed. Cal. Lab. Code § 2775(b)(1) codifies each.

Prong B decides most Southern California cases. A restoration company's technician, a delivery company's driver, a framing contractor's framer, and a salon's stylist are all performing the employer's own product, so the exemption analysis of Cal. Lab. Code § 2775 ends there.

AB 2257 added a long list of carve-outs now codified at Cal. Lab. Code § 2776 through Cal. Lab. Code § 2784: business-to-business relationships under Cal. Lab. Code § 2776, referral agencies under Cal. Lab. Code § 2777, professional services under Cal. Lab. Code § 2778, licensed professionals under Cal. Lab. Code § 2783, and construction subcontracting under Cal. Lab. Code § 2781.

When an exemption applies, the question reverts to the multi-factor analysis of S.G. Borello & Sons, Inc. v. Dept. of Industrial Relations, 48 Cal. 3d 341 (1989), which still asks who controlled the manner and means of the work. Borello also governs workers' compensation questions, where Cal. Lab. Code § 3357 supplies its own presumption of employment.

Every exemption is conditional. A business-to-business defense fails unless all twelve requirements of Cal. Lab. Code § 2776 are met, including that the worker sets its own rates, maintains a business location, and can contract with other customers. When a condition fails, Cal. Lab. Code § 2775 governs again.

Cal. Lab. Code § 2750.5 creates a presumption that any worker performing services for which a contractor's license is required under Cal. Bus. & Prof. Code § 7000 and following is an employee, and it makes the license an essential element of contractor status. An unlicensed jobsite worker cannot be an independent contractor.

The subcontracting exemption in Cal. Lab. Code § 2781 requires a written subcontract, a valid license, business licenses or tax registration, an independent business location, and freedom to hire the subcontractor's own workers. Cash-paid crews with no written contract satisfy none of it.

On public projects, Cal. Lab. Code § 1774 requires payment of not less than the prevailing wage to every worker on covered work, and Cal. Lab. Code § 1776 requires certified payroll records — records a misclassified worker was never entered into.

The U.S. Department of Labor uses an economic-reality analysis codified at 29 C.F.R. Part 795, weighing opportunity for profit or loss, investment, permanence, degree of control, whether the work is integral to the business, and skill and initiative. It is a balancing test, not a three-prong burden on the employer.

Federal overtime under 29 U.S.C. § 207(a) applies only past 40 hours in a workweek, with no daily requirement, so California workers usually plead Cal. Lab. Code § 510 first and add the federal claim where the longer willful lookback in 29 U.S.C. § 255 or federal liquidated damages under 29 U.S.C. § 216(b) help.

Where an employer kept no time records — the norm for misclassified workers — Tyson Foods, Inc. v. Bouaphakeo, 577 U.S. 442 (2016) permits proof of hours through representative evidence.

Overtime: time-and-a-half after 8 hours in a day and 40 in a week, and double time after 12 hours in a day, under Cal. Lab. Code § 510. Minimum wage: the balance owed plus interest under Cal. Lab. Code § 1194, with liquidated damages equal to the unpaid amount under Cal. Lab. Code § 1194.2, measured against the state floor in Cal. Lab. Code § 1182.12 and any higher local ordinance where the work was performed.

Meal and rest periods: one extra hour of pay per workday for each non-compliant break under Cal. Lab. Code § 226.7. Business expenses: mileage, tools, phone, and required equipment under Cal. Lab. Code § 2802. Unlawful deductions and chargebacks: recoverable under Cal. Lab. Code § 221.

Records and separation: itemized wage-statement penalties under Cal. Lab. Code § 226, up to thirty days of wages as a waiting-time penalty under Cal. Lab. Code § 203, and interest on unpaid wages under Cal. Lab. Code § 218.6. Sick leave and payroll-tax contributions the employer never made sit on top.

Cal. Lab. Code § 226.8 makes willful misclassification a violation carrying a civil penalty of $5,000 to $15,000 for each violation, and $10,000 to $25,000 for each violation where the employer engaged in a pattern or practice. It also bars charging a misclassified worker fees or making deductions that would have been unlawful for an employee.

Cal. Lab. Code § 2753 extends joint liability to any person who, for money, knowingly advises an employer to treat an individual as an independent contractor to avoid employee status. Cal. Lab. Code § 226.8 also authorizes a public notice requirement on the employer's website.

Aggrieved employees may seek civil penalties on the state's behalf under the Private Attorneys General Act, Cal. Lab. Code § 2699, following the required notice to the Labor and Workforce Development Agency; the 2024 amendments added cure procedures and adjusted the penalty allocation.

Statutory wage and overtime claims generally reach back three years under Cal. Civ. Proc. Code § 338, and four years when the unpaid wages are pursued as unlawful business practices under Cal. Bus. & Prof. Code § 17200.

Written-contract claims run four years and oral-contract claims two under Cal. Civ. Proc. Code § 337 and Cal. Civ. Proc. Code § 339. Federal FLSA claims run two years, or three for willful violations, under 29 U.S.C. § 255.

Each unpaid payday is its own violation, so waiting shortens the recoverable period rather than the claim itself. Retaliation for asking about classification is prohibited by Cal. Lab. Code § 98.6 and Cal. Lab. Code § 1102.5.

The Labor Commissioner's Division of Labor Standards Enforcement accepts individual wage claims, which proceed to a settlement conference and then an administrative 'Berman' hearing under Cal. Lab. Code § 98. Offices serve Los Angeles, Van Nuys, Long Beach, Santa Ana, San Diego, San Bernardino, and Bakersfield, among others.

A civil action in superior court allows broader discovery, class or representative claims, and recovery of attorney's fees and costs on minimum wage and overtime claims under Cal. Lab. Code § 1194. Penalty claims for other employees travel through Cal. Lab. Code § 2699.

Immigration status is irrelevant to any of it: Cal. Lab. Code § 1171.5 applies all state labor protections regardless of status, and Cal. Lab. Code § 244 removes any requirement to exhaust immigration remedies before filing.