Employment misclassification happens when an employer incorrectly classifies you as an independent contractor instead of an employee. Misclassification can significantly affect you since it deprives you of your employees' tax obligations, benefits, and rights. Navigating what could seem like a maze of California employment and labor laws is difficult. If you believe your employer has misclassified you, please consult Stop Unpaid Wages. We can help you fight for the compensation and justice you deserve. We can also help you understand the difference between an independent contractor and an employee, your rights, the importance of proper worker classification, and what to do if your employer has misclassified you.

How Employees Differ from Independent Contractors

A person is an independent contractor if the following is true:

  • They do not have a lasting relationship with the hiring party like employees do.

  • They can make more independent judgments and, to a lesser extent, whether under the firm or its supervisors, than employees can.

  • They have less significant responsibility in the firm's operation than employees and perform other work that is not part of the firm's regular business.

  • Own a company where they undertake identical tasks for different companies

  • They are paid a certain percentage for a given task to achieve the desired results

In other words, independent contractors regulate how they perform their work by:

  • Setting their work hours

  • Working for different clients

  • Using their equipment

Employers do not deduct independent contractors’ social security taxes and Medicare from their pay. Instead, they pay the Internal Revenue Service themselves via self-employment taxes.

While an employee is more bound to their employer than an independent contractor is, an employee enjoys the privileges that an independent contractor does not. For example, independent contractors are not entitled to overtime wages or minimum wage pay per state or federal law.

Moreover, most firms provide the following employee benefits that an independent contractor cannot access:

  • 401 plans

  • Wage and hour protection, like rest and meal breaks

  • Unemployment insurance

  • Vision insurance, dental insurance, and healthcare insurance

  • Workers’ compensation insurance

Typically, employers misclassify employees for numerous reasons, including the following:

  • To lower labor costs and avoid responsibilities related to employee status

  • Labor laws misinterpretation

  • Misinformation about classification criteria

The consequences of misclassification can be detrimental for workers, resulting in:

  • Losing overtime pay

  • Increased chances of exploitation

  • Diminished access to statutory benefits

Independent Contractors' Rights

Here are your rights as an independent contractor:

Right to Contract

As an independent contractor, you should sign a contractual agreement with the hiring entity before commencing any service or project. The agreement safeguards your interests and those of the hiring entity.

Right to Work

Independent contractors delight in being their own boss and determining when, how, and where to undertake a project. The hiring party can decide how they want the final service or product to appear, but you influence the manner of completion.

The Entitlement to Proper Classification

Independent contractors should be appropriately classified. The passage of AB5 changed the previous definition of an independent contractor. Consequently, you have the right to know whether you are an employee or an independent contractor.

Right to Payment

As an independent contractor, you are entitled to pay for work rendered. Although the hiring party is not subject to federal and state tax requirements relating to independent contractors, it must make payment for work completed as per the contractual agreement.

The Entitlement to Legal Redress

You can enforce the contractual terms if you have an independent contractor agreement with the paying entity. Furthermore, if you have been misclassified as an independent contractor but are an employee, the law allows you to take legal action and pursue the compensation you deserve.

Employees Rights

Employees' rights include the following:

Minimum Wage

Every worker in California, with some exceptions, but excluding an independent contractor, is entitled to a minimum wage per California’s wage and hour regulations regarding hourly rates.

As of January 1, 2025, the state’s minimum wage for employees is $16.50 per hour.

Please note that this is California's minimum wage. Most counties and cities in California have a higher minimum wage.

SB 1162 (pay transparency law) requires most employers with at least 15 workers to include their pay range in the job postings. Additionally, current employers can request a pay range for their position.

Rest breaks

Under the wage and hour regulation, employers should offer non-exempt employees scheduled rest breaks.

The state and wage and hour regulations also mandate that employers offer their non-exempt employees rest breaks or rest periods.

As a non-exempt employee, you have the right to a ten-minute rest break after working four hours or a significant fraction of your work. Nevertheless, you do not qualify for rest periods for a work shift under three and a half hours.

During your rest breaks, the employer should not instruct you to undertake any work-related duties or stay on call.

Meal Breaks

Only nonexempt employees qualify for meal breaks under the wage and hour regulation.

Employers should offer many non-exempt employees in California who work a shift that exceeds five hours a day a 30-minute meal break. Nevertheless, employees who work less than six hours per day could waive their meal break.

Furthermore, you should receive another thirty-minute meal break if you work for more than ten hours. While you can waive the subsequent break if they did not forego the initial meal break, you should not work for more than 12 hours per shift.

There exist exceptions to the meal break law for employees whose collective bargaining agreements offer meal breaks on a varying schedule. These exceptions apply to unionized employees, including the following:

  • Security officers

  • Commercial drivers

  • Construction occupations

  • Gas or electrical companies

  • Motion industry employees

Overtime Rules

California overtime regulations apply only to non-exempt employees. Your employer cannot ignore overtime requirements by pressuring you to work off the clock.

  • Double time overtime — You should receive double overtime, equal to twice your regular pay rate, for working more than twelve hours in a single workday or more than eight hours on the seventh day of your workweek. Sometimes, employees and employers can agree that the workers work ten hours a day, within a 40-hour workweek, without overtime pay. The arrangement is an alternative workweek schedule; two-thirds of the impacted workers should approve it.

  • Time and a half overtime — Your employer should pay you overtime equivalent to one and a half times your regular pay rate for work exceeding eight hours in a single workday or forty hours in a single workweek. You should also receive time and a half overtime after working the first eight hours on the seventh day of your workweek.

California’s ABC Test for Knowing Whether You are Misclassified

Courts use the ABC test to ascertain whether a vendor or worker is an actual employee or an independent contractor. Under federal and state employment regulations, employees are entitled to legal employment safeguards, including minimum wage, overtime pay, and other benefits. On the contrary, independent contractors do not qualify for these benefits. Companies misclassify workers as a way of avoiding certain employee obligations.

Based on the test, you are an employee except if these facts apply to your case:

  • Your work performance is not subject to your employer's direction and control under the contractual agreement and in reality.

  • You undertake work that is different from your employer’s regular business operations.

  • You engage in another business that offers work similar to your services.

These three factors are worth examining carefully.

Per the ABC test, courts presume any worker is an employee. Therefore, the hiring company must demonstrate the above-listed three factors. If the company can prove these factors, you are a contractor. On the other hand, if the hiring party cannot meet the legal threshold, your status is an employee.,

However, the ABC test does not resolve all misclassification cases. Recent modifications to California’s labor code exempt some professions and business relations from the ABC test. Under these circumstances, courts use the old Borello test.

Borello Test

California used the Borello test to distinguish employees from independent contractors before the ABC test became effective. It is a totality of the circumstances approach established by the California Supreme Court in 1989. It reviews all applicable factors to ascertain a worker’s status. These factors focus on how the employer in question closely controls the worker.

The Borello test questions that help guide classification include the following:

  • Does the employer supervise or instruct the individual while they are working?

  • Does the person have a separately established business?

  • Can the individual be discharged or fired at any time?

  • Does the employer have other employees who undertake the same form of work?

  • Is the person free to make decisions that impact their ability to gain from the work?

  • Does the employer provide the necessary equipment, tools, or supplies to perform the work?

  • Is the work regarded as unskilled or semi-skilled labor?

  • Does the worker have a significant investment in their work, which could subject them to potential financial loss?

  • Does the employer offer training for the worker?

  • Does the individual believe they are an employee?

  • Did the person previously undertake similar services for the employer as an employee?

  • Is the worker on an hourly wage, fixed salary, or piece-rate basis?

Instances When the ABC Test is Not Used

Different forms of occupations are exempt from the test, subjecting them to the Borello test to decide their appropriate employment status.

Following AB 2257 passage, 109 workers are exempt from the test application. They include the following:

  • Entertainers and creative artists

  • Individuals offering feedback to date aggregators

  • Insurance risk managers, auditors, and underwriters

  • Medical experts, like veterinarians, dentists, surgeons, and doctors

  • Direct salespersons

  • Marketers

  • Graphic designers

  • Grant writers

  • Freelance writers and editors

  • Travel agents

Moreover, the following categories of workers could be subjected to the ABC test under specific circumstances. The test does not apply to relationships that include the following:

  • Bonafide business-to-business contracting relationship

  • Service providers and referral companies

  • Specific construction contractors and people performing work as subcontractors

  • Two entities or people working under one contract that covers one engagement

Business-to-Business Exceptions to the ABC Test

Suppose you are offering services under a bona fide business contracting relationship. In that case, the court uses Borello to decide whether you should be classified as a contractor or employee if the following requirements are satisfied:

  • You should be a business entity founded as a limited liability company, corporation, limited liability partnership, partnership, or sole proprietorship.

  • You should not be under the direction and control of the hiring firm, regarding work performance in fact and under a contract

  • You should offer services to the hiring firm instead of its clients. Nevertheless, the requirement is not applicable if your employees are performing services under your name (not the hiring company) and you contract with other companies regularly.

  • If you work in a place that requires you to own business tax registration or a business license, you should meet the requirements.

  • Your contract is written and outlines your payment amount, including the applicable pay rate for services delivered and the due payment dates.

  • You maintain a business location, which could be your residence, different from the hiring entity’s work or business location.

  • You are engaged in an independent, established entity similar to the work you performed.

  • You can contract other companies to offer similar or the same services and maintain a clientele without limitation from the hiring firm.

  • You advertise yourself as available to deliver identical services

  • You negotiate your rate

  • You set your hour and work location

  • You have your tools, equipment, and vehicle to perform the services. However, this does not include proprietary materials essential to deliver services under your contract.

Typical Misclassification Cases

Workers who work in the gig economy are regularly misclassified as contractors, including individuals working for firms with the following business models:

  • Lyft

  • Uber

  • Uber eats

  • DoorDash

Other workers who experience misclassification include the following:

  • Artists

  • Editors

  • Writers

  • Web designers

  • Photographers

  • Other freelancers

Misclassification Lawsuit

Deliberate misclassification of any independent contractor means voluntarily and knowingly misclassifying a worker to avoid meeting employee status obligations per California regulations.

Deliberate misclassification of a worker attracts a civil fine ranging from $5,000 to $25,000 for a single violation. If any employer is penalized, the law bans them from charging fees or making deductions.

If the employer does not pay the proper minimum wage or overtime due to the wrongful classification, the employee can collect the following:

  • Reimbursement for any unpaid money owed

  • Interest and appropriate legal fees

If the employer did not offer meal breaks due to the worker’s misclassification, the employee may sue for the denied breaks. You can pursue damages equivalent to an hour’s pay at the normal rate for every break your employer owes you.

You can also claim liquidated damages equivalent to your unpaid wages plus interest. You can recover liquidated damages if your employer's conduct was due to a bad-faith error.

Please note that a trucking firm that misclassifies its motorists is uploaded to the California state website to warn potential clients. Clients who continue hiring the trucking firm could be responsible for the motorists' unpaid fines.

Statute of Limitations

The SOL for filing your wage and hour lawsuit is three years following the recent violation.

Nevertheless, the SOL is four years if you have a lawsuit against your employer for breaching your employment agreement.

Evidence to Prove Your Misclassification Claim

Key proof to demonstrate misclassification in court can include the following:

Written Agreements or Contracts

A written agreement can provide a crucial insight into the nature of the worker-employer relationship. Agreements contain your employment’s terms, responsibilities, and level of autonomy. If your agreement contains terms recommending substantial control by the hiring party over your tasks or schedule, that can help prove your employee status.

Your employment status depends on the specifics of your employment relationship, not what your employment contract says. Simply because the employment contract classifies you as an independent contractor does not end the matter. The court cannot declare you an independent contractor because a contractual agreement bears your signature.

What matters is whether the relationship with your employer and your work demonstrates an ongoing employment relationship.

Tax Return Filings

You can use your employer's tax filing information to prove your misclassification claim. Employers give their employees Form W-2 and independent contractors Form 1099-NEC; any discrepancies can prove that they have misclassified you.

Payment Records and Pay Stubs

Payment documentation can prove misclassification in various ways, including if you receive regular, consistent payments and do not invoice your work, which are common features of an employer-employee relationship. Additionally, no overtime pay after working beyond 40 hours in a workweek can enable you to support your suit for damages due to misclassification as an independent contractor.

Missing Benefits

An absence of or limited access to work-related benefits like vacation days, paid sick leave, health insurance or other employee privileges can occur due to wrongful classification. Documentation detailing denied wages or benefits will assist in substantiating your claim.

Business Expenses Records

Independent contractors bear some of the financial obligation relating to their work expenses, like equipment, tools, or supplies. As an employee, if your employer fails to offer these essential items or to reimburse your costs, it could indicate a violation of duty. Records like expenditures in the form of receipts or employer correspondence may bolster your case and claim for damages.

Retaliation after Reporting Misclassification

Labor Code Section 98.6 bans employers from discriminating or retaliating against an individual who reports wage and hour violations to the Labor Commissioner.

Typical forms of discriminatory or retaliatory conduct by employers include the following:

  • Dismissing you

  • Denying a promotion

  • Suppressing your opinion

  • Harassing you

  • Demoting you

If your employer fired you for whistleblowing, you have two legal options, namely:

  • You bring your complaint to the labor commissioner, who will investigate the case and take action after finding out your employer treated you unfairly. Time is of the essence; you have one year from the time of the retaliation to bring your complaint.

  • You can also file a lawsuit, which is more complicated

It is wise to consult a skilled employment attorney who can explore your available options and guide you on how to obtain the most favorable case outcome.

If your employer retaliated against you in breach of LC 98.6, you can be awarded a civil penalty worth $10,000 from your employer for every violation. If you were wrongfully fired, you will receive reinstatement and reimbursement for your lost wages.

Federal Law

The Fair Labor Standards Act (FLSA) neither mandates an employer to pay an independent contractor a minimum wage or overtime pay, nor requires the employer to maintain certain documentation relating to dealings with that independent contractor. The FLSA does not define who an independent contractor is, but it defines an employer as a person acting in the interest of an employer in regard to an employee.

The federal law uses the following factors to determine whether you are an independent contractor:

  • The individual’s level of control

  • Permanency of relation

  • The person’s skill requirement

  • The person’s investment in working facilities

  • The individual’s opportunity for either profit or loss

  • Integration of the person's work in the business to which he renders service

If your company violated federal labor laws per the FLSA, you can recover liquidated damages equivalent to your unpaid income and interest, amounting to double damages.

Find a Seasoned Employment Law Lawyer Near Me

You could be a victim of employee misclassification if your employer has classified you as an independent contractor even though you do not satisfy the criteria of being categorized as such. Consequently, you miss out on overtime pay, wages, and employment benefits to which you are lawfully entitled to. At Stop Unpaid Wages, we understand the effect of employment misclassification in California and can help you fight for your rights. We can help you take the necessary steps to pursue fair compensation. We can also maintain an open line of communication, answer your questions, and offer regular updates, ensuring you have peace of mind. Please contact us at 424-781-8411 to schedule your initial free consultation.