Employee misclassification is one of the biggest wage theft problems in California. Many companies label workers as “independent contractors” even though the law considers them employees. When this happens, workers lose overtime pay, meal and rest breaks, reimbursement rights, and legal protections they are entitled to.

California has very strict rules about who qualifies as an independent contractor, and most workers do not meet the legal test. This guide breaks down the law, the ABC Test, common violations, and how misclassified workers can recover unpaid wages and benefits.

What Is Misclassification?

Misclassification happens when a company labels a worker as an independent contractor instead of an employee even though the worker performs work that should legally be treated as employment. Companies often do this to avoid paying:

• Overtime
• Meal and rest breaks
• Minimum wage
• Workers compensation
• Payroll taxes
• Reimbursements
• Unemployment benefits
• Sick pay

Misclassification is illegal, even if the employer claims the worker prefers contractor status.

The ABC Test: California’s Standard for Worker Classification

California uses the ABC Test to determine whether a worker is an employee or an independent contractor. Under this test, a worker is presumed to be an employee unless the company proves all three requirements:

A. The worker is free from the company’s control in performing the work.
This means the company cannot supervise, direct, or control how the work is done.

B. The worker performs work outside the usual course of the company’s business.
This requirement is strict. For example, a delivery driver working for a delivery company or a paralegal working for a law firm is almost never an independent contractor.

C. The worker is engaged in an independently established business.
This means the person has their own clients, business license, tools, or marketing.

If any of these three parts fail, the worker must be classified as an employee.

The California Department of Industrial Relations explains the ABC Test at https://www.dir.ca.gov.

Industries Most Affected by Misclassification

Misclassification is common in:

• Rideshare and delivery companies
• Construction
• Security companies
• Cleaning services
• Trucking
• Salons and barbershops
• Warehousing and logistics
• Healthcare and caregiving
• Sales positions
• Gig economy platforms

Companies often misclassify workers to reduce costs and avoid paying legal wages.

Why Companies Misclassify Workers

Employers misclassify workers because they benefit financially. Independent contractors are cheaper for companies because they avoid paying:

• Overtime
• Meal and rest break premiums
• Workers compensation insurance
• Unemployment taxes
• Reimbursement for tools, equipment, or travel
• Payroll taxes
• Health benefits

This creates an unfair advantage and harms workers who lose thousands of dollars each year.

Signs You Are Being Misclassified

You may be misclassified if:

• The company tells you when and where to work
• You must follow company rules or policies
• You use company equipment or tools
• You report to a supervisor
• You cannot hire your own helpers
• You work full time for one company
• You perform the same job as employees
• You do not have your own business license
• You are not free to take other clients
• You must clock in or out
• You receive training from the company

If this sounds familiar, you are likely an employee under California law.

Rights Misclassified Workers Lose

When a worker is wrongly classified as a contractor, they lose:

• Overtime pay
• Minimum wage guarantees
• Meal and rest breaks
• Reimbursement for expenses
• Sick pay
• Workers compensation benefits
• Unemployment benefits
• Legal protections under employment laws

These rights are significant, and losing them is a form of wage theft.

What Employees Can Recover for Misclassification

If you were misclassified, you may recover:

• Unpaid overtime
• Unpaid minimum wages
• Meal and rest break premiums
• Reimbursement for business expenses
• Interest
• Waiting time penalties
• Attorney fees
• Tax penalties owed by the employer

Misclassification claims can result in large settlements because violations often last for years.

What Evidence Helps Prove Misclassification

Strong evidence includes:

• Work schedules
• Emails or texts showing company control
• Timecards
• Pay records
• Job descriptions
• Company policies
• Witness statements
• Proof you did not operate your own business
• Photos of work location or tools provided
• Communications showing supervision

California law favors workers, so even partial evidence can help prove a claim.

Federal Misclassification Protections

In addition to California laws, the U.S. Department of Labor enforces federal worker classification rules. Their official guidance is available at https://www.dol.gov/agencies/whd.

California laws are stronger, but federal protections add another layer of rights.

Final Thoughts

Misclassification is a major employment law violation that harms workers financially and strips them of important protections. California’s ABC Test makes it clear that most workers are employees, not contractors. If you were treated like an employee but labeled as a contractor, you may be entitled to significant compensation.