Understanding Employee Misclassification
Employee misclassification occurs when an employer labels a worker as an independent contractor rather than an employee. While independent contractors legitimately exist in many industries, the distinction carries enormous legal consequences. Employees are entitled to minimum wage protections, overtime pay, meal and rest breaks, workers' compensation coverage, unemployment insurance, and employer-paid payroll taxes — none of which apply to independent contractors.
Employers misclassify workers for one primary reason: to save money. By labeling employees as independent contractors, companies avoid paying payroll taxes, providing health insurance and other benefits, covering workers' compensation premiums, and complying with wage and hour laws. This practice is illegal under California law and deprives workers of fundamental workplace protections.
At Zaghi & Chrzan, LLP, we represent workers across California who have been misclassified and denied the compensation and protections they deserve. If you believe you have been improperly classified as an independent contractor, we can help you understand your rights and recover what you are owed.
California's ABC Test
In 2020, California codified the ABC test through Assembly Bill 5 (AB 5), establishing a strict standard for determining whether a worker is an employee or an independent contractor. Under this test, a worker is presumed to be an employee unless the hiring entity can prove all three of the following conditions:
- Prong A — Free from Control and Direction: The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract and in fact. If the company dictates when, where, and how you perform your work, this prong is not satisfied.
- Prong B — Outside the Usual Course of Business: The worker performs work that is outside the usual course of the hiring entity's business. For example, a plumber hired by a law firm to fix pipes may qualify as an independent contractor, but a driver hired by a delivery company likely does not — because driving is the company's core business.
- Prong C — Independently Established Trade or Business: The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed. The worker must have their own independent business that exists apart from the relationship with the hiring entity.
If the employer cannot satisfy all three prongs, the worker is legally an employee — regardless of what the contract says or how the company characterizes the relationship.
Labels Don't Determine Classification
One of the most important things to understand about employee misclassification is that labels are irrelevant. Just because you signed an independent contractor agreement does not make you an independent contractor. Just because you receive a 1099 tax form instead of a W-2 does not mean you are properly classified.
California law looks at the substance of the working relationship, not the form. Courts and agencies examine the actual working conditions — who controls the work, how integral the work is to the business, and whether the worker operates an independent enterprise. An employer cannot simply relabel employees as contractors to avoid legal obligations.
If your employer controls your schedule, provides your tools and equipment, dictates how you perform your work, or prevents you from working for other companies, you are likely an employee — no matter what your contract says.
Exceptions to the ABC Test
AB 5 includes certain exemptions for specific occupations and industries. Workers in the following categories may be evaluated under the older, more flexible Borello test rather than the ABC test:
- Insurance agents licensed by the California Department of Insurance
- Licensed medical professionals including physicians, surgeons, dentists, podiatrists, psychologists, and veterinarians
- Licensed professionals such as lawyers, architects, engineers, private investigators, and accountants
- Securities broker-dealers and investment advisers registered with the SEC or FINRA
- Licensed contractors holding a valid contractor's license issued by the Contractors' State License Board
- Direct salespersons including those selling consumer products primarily in private homes or at sales presentations
Even under these exceptions, workers are not automatically classified as independent contractors. The Borello test examines the totality of the relationship, including the degree of control the hiring entity exercises and the worker's opportunity for profit or loss. If you fall within an exempt category and believe you have been misclassified, an experienced attorney can evaluate your situation.
What You May Be Owed
If you have been misclassified as an independent contractor, you may be entitled to recover significant compensation, including:
- Unpaid overtime: As an employee, you would be entitled to time-and-a-half for hours worked beyond 8 in a day or 40 in a week, and double time for hours beyond 12 in a day.
- Meal and rest break premiums: California employees are entitled to meal and rest breaks. If you were denied these breaks, you may be owed one hour of premium pay for each missed break.
- Expense reimbursement: Employers must reimburse employees for necessary business expenses, including mileage, tools, equipment, and cell phone costs incurred in the course of work.
- Benefits: Misclassified employees may be entitled to benefits they were wrongfully denied, including health insurance, retirement contributions, paid sick leave, and paid family leave.
- Workers' compensation coverage: Employees injured on the job are entitled to workers' compensation benefits. If you were injured while misclassified, your employer may be liable for your medical expenses and lost wages.
- Unemployment insurance: Employees who lose their jobs are entitled to unemployment benefits. Misclassified workers who were denied unemployment benefits may be able to recover those losses.
In addition to these damages, employers who willfully misclassify workers may face penalties under California Labor Code sections 226.8 and 2753, including fines ranging from $5,000 to $25,000 per violation.
How We Can Help
At Zaghi & Chrzan, LLP, our employment attorneys have extensive experience handling employee misclassification cases throughout California. We understand the tactics employers use to avoid their legal obligations, and we know how to build strong cases that hold them accountable.
We handle every aspect of your claim — from analyzing your working relationship and gathering evidence to negotiating a fair settlement or taking your case to trial. We work on a contingency fee basis, which means you pay nothing unless we recover compensation on your behalf.
If you believe you have been misclassified as an independent contractor, do not wait. Statutes of limitations apply, and the sooner you act, the stronger your case will be. Contact us today for a free, confidential consultation.
How do I know if I was misclassified as an independent contractor?
California often applies the ABC test and other legal standards to determine whether a worker should be treated as an employee rather than an independent contractor.
What can I recover if I was misclassified?
Misclassified workers may be entitled to unpaid overtime, missed break premiums, expense reimbursement, wage statement penalties, payroll tax corrections, and other damages.
Can a company avoid liability by calling me a contractor?
No. Labels alone do not control. Courts and agencies look at the actual working relationship, control, duties, and business structure involved.