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.
