Misclassification
Employee misclassification occurs when an employer wrongly labels a worker as an independent contractor instead of an employee.
In California, this distinction matters because employees are entitled to a wide range of legal protections and benefits that independent contractors are not. Misclassification can result in wage theft, denial of benefits, and employer liability under state law.
Why Classification Matters
Employees are entitled to:
- Minimum wage and overtime pay
- Meal and rest breaks
- Workers’ compensation and unemployment insurance
- Paid sick leave and family leave protections
- Employer contributions to payroll taxes
Independent contractors, by contrast, are not protected by most labor laws. Employers who misclassify workers may avoid paying taxes, benefits, and wage premiums—often to the worker’s detriment.
Case Results
ABC Test
California uses the ABC test to determine whether a worker is an employee or an independent contractor under Assembly Bill 5 (AB 5) and Labor Code § 2775. A worker is presumed to be an employee unless the employer proves all three of the following:
control and direction
outside the usual course
If the employer cannot satisfy all three parts, the worker must be classified as an employee.
Exceptions and Alternative Tests
Some occupations are exempt from the ABC test and instead evaluated under the older Borello test, which focuses on multiple factors including the right to control work, level of supervision, and the nature of the work relationship. Examples include certain licensed professionals, real estate agents, and some freelance writers.
However, even exempt roles must still be properly classified under applicable standards.
Consequences of Misclassification
Employers found to have misclassified workers may face:
Employees may recover these damages through claims filed with the California Labor Commissioner, the Employment Development Department (EDD), or through civil litigation.