By: Larissa C. Celaya

California employers continue to face significant exposure for misclassifying workers as independent contractors rather than employees. Under California law, worker classification is not simply a matter of contract language or employer preference. Instead, California Labor Code section 2775 codifies the “ABC test” established by the California Supreme Court in Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal.5th 903, which governs whether certain employees may properly be classified as an independent contractor.

Under the ABC test, a worker is presumed to be an employee unless the hiring entity establishes all three of the following:

(A) the worker is free from the control and direction of the hiring entity;
(B) the worker performs work outside the usual course of the hiring entity’s business; and
(C) the worker is customarily engaged in an independently established trade or business of the same nature as the work performed.

California Labor Code section 2775 imposes a demanding standard for employers, particularly because failure to satisfy any one of the three elements generally results in employee status. In practice, the “B” prong often presents the greatest challenge. If workers are performing the core services the business exists to provide, independent contractor classification may be difficult to sustain.

Misclassification can be an extraordinarily costly misstep. Once a misclassification occurs, the employer can be found liable for all wages, benefits, and protections that employee should have received as an employee under California law throughout the duration of their employment. That can include exposure for unpaid overtime, meal and rest period premiums, unreimbursed business expenses, wage statement penalties, waiting time penalties, and potential claims under California’s Private Attorneys General Act (“PAGA”).  When misclassification occurs across an entire group of workers, an employer’s exposure can quickly multiply. In addition, state agencies continue to aggressively investigate and enforce alleged misclassification violations.

A recent enforcement action by the California Labor Commissioner illustrates the risks. According to a California Department of Industrial Relations news release issued on April 23, 2026, a mother-and-son caregiving operation was cited approximately $4.4 million for allegedly misclassifying caregivers as independent contractors. The Labor Commissioner alleged the caregivers were performing the very services the business offered to clients, which created significant issues under the ABC test. The investigation also reportedly uncovered additional wage and hour violations, including alleged failures relating to overtime and other Labor Code protections.

The enforcement action serves as another reminder that California agencies continue to closely scrutinize independent contractor relationships. Employers utilizing independent contractors should periodically review their classifications, agreements, and operational practices to ensure continued compliance with California’s evolving worker-classification standards. Worker-classification issues often begin with uncertainty but can quickly turn into significant liability exposure. Wilke Fleury’s Employment Team assists employers with proactive worker-classification analysis, compliance guidance, and defense strategies when misclassification claims or agency investigations arise.

By: Kathryne E. Baldwin

George Bernard Shaw has a quote we use a lot in my family: “The single biggest problem in communication is the illusion that it has taken place.” This is pertinent to contractors and homeowners alike because the cost of failing to get proper signatures on documents like construction contracts, and particularly, change orders, is heavy. Both contractors and homeowners are in the same boat as far as wanting to complete a job as swiftly as possible: contractors go on to their next job and homeowners can return to peace in their home. This is prime territory for either party to suggest the work be completed today and the contract or change order executed tomorrow, or even later. However, without a contract, there is no memorialization of the communication between the parties, which can lead to confusion and missed expectations on both sides.

Construction plans are rarely as neat and tidy as they originally seem to be. A contractor may uncover unforeseen conditions, an owner may request additional work or changes that require additional work, or weather interferes with project schedules or the work itself. Unfortunately, the signature that never gets collected can become one of the most expensive omissions on a project – for both sides.

As a litigator, I frequently see disputes that begin with a simple statement: “We agreed to it.” Or “That’s what they said they would do.” The problem is that often months – or even years – later, the parties no longer agree on what was approved, who approved it, or how much it was supposed to cost. If we believe George Bernard Shaw, it may be the case that the parties never really even agreed on the scope of the work to be done in the first place.

Many contractors perform additional work based on a verbal conversation at the jobsite, a quick phone call, or an informal text message. At the time, everyone may be on the same page (or not). The project moves forward, the work gets completed, and the parties focus on finishing the job.

The dispute often arises later when payment becomes due or when the homeowner is finally presented with a copy of the change order or contract. At that time, the contractor has made his or her case more difficult for receipt of payment. It may be the case that actual materials cost may have been underestimated, leading up to a surprise amount to pay for the owner.

By the time many of these issues come home to roost, key project personnel may have moved on to different jobs. Memories fade. Documents become difficult to locate. What was once a likely straightforward conversation becomes a costly disagreement.

In fact, as of January 1, 2026, California law added a statute to control the way construction payment disputes are handled. (Civ. Code, §8850.)  After an owner gets his or her final invoice, they must review it within thirty days and reply with a written statement outlining which costs are undisputed and which are not. If the owner fails to do so, or the parties fail to agree, the contractor may request an informal conference, which must take place within thirty days. Within the ten days following, the owner must send another written statement within ten days again outlining the portions of the demanded amount disputed and undisputed. If, following the meet and confer conference, the parties still do not agree on a payment amount, the parties must attend nonbinding mediation[1]. Under this section, homeowners who do not comply with this payment scheme may lose their claims as against the disputed portion of the claim. For any undisputed portion of the claim not paid, it shall incur interest at a rate of 2% per month.

These types of issues are not limited to change orders. Handshake agreements at the outset can create similar problems. While oral contracts may be enforceable under certain circumstances, proving the exact terms of an unwritten agreement can be challenging, and claims for breach of an oral contract have – generally – shorter statutes of limitation. Parties frequently remember the same conversation very differently when significant amounts of money are at stake. (Thank you, George Bernard Shaw.) These issues are compounded when there may be concerns with the quality of work performed and the owner may now be frustrated and unsatisfied with everything the contractor has done.

The best way to avoid these disputes is simple: document the agreement before the work is performed. A signed change order should clearly identify the additional work, the associated cost, and any impact on the project schedule. If circumstances require immediate action, a follow-up email confirming the discussion can provide valuable evidence if questions arise later, but this should not take the place of a formal change order. While it may be tempting for both the homeowner and the contractor to plow forward with the work and settle up later, it is important to take the time to hash out the details. While a pause of the work for even a day or two on the job may be costly, it will likely not amount to the cost both parties will spend on court fees, mediators, and attorneys if the matter needs to be litigated. This is to say nothing of the cost of how long litigation can take; matters that need to go to trial can wait for years before a judgment is issued.

Good documentation is not about mistrust. It is about clarity and managed expectations. A written agreement protects everyone involved by ensuring that expectations are understood before disputes develop. Construction litigation is often expensive because courts are asked to reconstruct conversations that occurred months or years earlier. Signed contracts and change orders, by contrast, takes only minutes. Those few minutes may save thousands of dollars in legal fees and countless hours of uncertainty down the road.

Experienced mediators in California can charge $500 to $3000 per hour and, often, minimums are set that both sides must pay.

By: Jizell K. Lopez

On May 21, 2026, the California Court of Appeal sided with an employer in a Fair Employment and Housing Act (“FEHA”) disability case, a genuine win for employers, but one with real limits worth understanding. 

As a brief background, FEHA requires employers to provide reasonable accommodations for an employee’s physical or mental disability and to engage in a timely, good-faith interactive process with the employee to determine what accommodations are reasonable. California law has long held that an employer cannot be liable for violating FEHA’s disability provisions unless it knows of that disability, including: (1) when an employee notifies the employer of a physical or mental disability, (2) if the employer learns of the disability through a third-party, or (3) if the employee becomes aware of the condition through observation. In Husband v. Target Corp., the Court of Appeal answered a question that is consistently brought up in workplaces: when does an employee’s odd or troubling behavior legally put the employer “on notice” that they are dealing with a disability?

The Facts:

Daniel Husband (“Husband”) worked as a fulfillment expert at a Target store in Burbank for about 20 months without incident. Then things changed fast. First, Husband allegedly swore at a coworker when he entered the store as a customer. A few weeks later he showed up to a shift agitated and yelling, and his supervisor sent him home, describing the behavior as “out of the ordinary” and “somewhat disturbing.” The next day, Husband arrived shaky and distraught and told his supervisor he’d “killed” his stepmother by speaking a word, then asked whether he’d killed anyone at the store. Supervisors were alarmed enough to loop in Human Resources and privately suggest Husband might need to see a doctor or even be hospitalized. That same day Target terminated Husband for violating its workplace violence policy after he made threats against coworkers. In turn, Husband sued Target under FEHA for disability discrimination, failure to accommodate, and failure to engage in the interactive process built on the theory that Target should have recognized he had bipolar disorder and accommodated him. Here, Husband never told Target about his diagnosis, and never requested an accommodation.

The trial court granted summary judgment, finding that Target had no knowledge of the employee’s alleged disability when it decided to terminate him and that no accommodation was necessary since the employee never disclosed he suffered from a mental disability.

Holding:

The Court of Appeal affirmed. The Court ruled that an employer is not liable for disability discrimination under FEHA unless it had actual knowledge of the disability (from the employee or someone else) or imputed knowledge. It should be noted that imputed knowledge only exists when a disability is the “only reasonable interpretation” of the facts the employer had in front of it. Erratic, alarming, even disturbing behavior isn’t enough on its own.  

The Court reasoned that while one interpretation of the employee’s actions was a mental disability, another reasonable interpretation was that the employee suffered a “side effect of ingesting illegal substances or a combination of prescribed medications or a manifestation of sleep deprivation.” The Court rejected the notion that the manager’s subjective opinion regarding employee treatment from a hospital altered the analysis. Rather, the standard is an objective one based on the facts, not a subjective opinion from an untrained co-worker.

Why This Matters:

This is useful precedent for employers. However, it is not a blank check to ignore warning signs. There are three practical takeaways employers should consider:

            1.         Document what you observe, not what you assume. Here, Target’s contemporaneous         notes describing the behavior as “out of the ordinary” rather than speculating about the   employee’s diagnosis helped its case.

            2.         Keep the disclosure channels open. The court noted Target employees said they would have accommodated Husband’s condition had they known. That’s a favorable fact. Employers still need clear, well-publicized ways for employees to disclose a disability and request accommodation, because once an employer has actual knowledge, the interactive process obligation immediately kicks in.

            3.         Don’t be tempted into willful blindness. The “only reasonable interpretation” standard is narrow. If an employee or a family member explicitly tells you about a condition, or the facts are genuinely unambiguous, courts will still find imputed knowledge. This case protects employers who acted on legitimate policy violations without a disability disclosure. It does not protect employers who had clear signals and looked away.

Bottom Line:

Employers still need to be mindful before disciplining or terminating an employee for concerning conduct. Employers should train supervisors to escalate concerning behavior to HR immediately, document behavior factually, and make sure your accommodation request is easy to find and easy to use. Provided the complexities of the law, employers should consult with an experienced employment attorney in uncertain cases.