If you were labeled an independent contractor but treated like an employee, California law may say you were misclassified. An employee misclassification lawyer can help you recover pay and benefits you were denied, and can help employers classify workers correctly and defend against claims.
In California, most workers are presumed to be employees under the ABC test unless the business proves otherwise. This page explains what counts as misclassification, what it can cost, and how claims are pursued. Our California employment lawyers work from our San Mateo office. For a free consultation, call 650-250-0705.
How Do I Know If I Was Misclassified in California?
California presumes a worker is an employee under the ABC test in Labor Code section 2775 unless the hiring business proves all three parts: that the worker is free from the company’s control and direction, performs work outside the usual course of the company’s business, and is customarily engaged in an independently established trade of the same nature. Many specific occupations are carved out and judged under the older Borello standard instead. The label on a contract does not control — California looks at the actual working relationship.
Key Takeaways
- The ABC test presumes employee status; the business must prove all three parts to establish contractor status.
- Many occupations are carved out by statute and tested under the older Borello standard.
- Willful misclassification can bring civil penalties of $5,000 to $15,000 per violation under Labor Code section 226.8, with higher penalties for a pattern or practice.
- Being paid a salary does not make you exempt — for 2026 the minimum exempt salary is $70,304 a year, and the duties test must also be met.
- A misclassified worker may be owed overtime, minimum wage, meal and rest premiums, and reimbursed expenses.
What Counts as Misclassification in California?
Misclassification happens when a worker is put in the wrong legal category. The two common forms are an employee wrongly called an independent contractor, and a regular employee wrongly called exempt from overtime.
The stakes are real. Independent contractors do not get many of the protections employees receive, such as overtime, paid breaks, and expense reimbursement. So the label on a contract is not what controls. California looks at the actual working relationship.
A business does not get to decide the category on its own. Classification is a legal test. If the relationship looks like employment, the worker is usually an employee no matter what the paperwork says.
The ABC Test: California’s Default for Contractor Status
For most jobs, California uses the ABC test in Labor Code section 2775. It starts by presuming the worker is an employee. To treat someone as an independent contractor, the hiring business must prove all three parts. Fail even one, and the worker is an employee.
| Part of the test | What the business must prove |
| A. Control | The worker is free from the company’s control and direction in how the work gets done, both under the contract and in real life. |
| B. Outside the usual business | The work falls outside the usual course of the company’s business. A dress company hiring seamstresses to sew its dresses would likely fail this part. |
| C. Independent business | The worker truly runs an established trade or business of the same kind and serves other clients, not just this one company. |
Because all three parts are required, many workers who signed a contractor agreement are still employees under this test.
The Borello Exemption
The ABC test does not cover every job. Many specific occupations are carved out by statute and tested under the older Borello standard instead. Borello is a multi-factor test, and control over the work is a central factor in it.
The right test depends on the occupation. That is why it helps to confirm which standard applies before relying on any classification. Even under Borello, a written contract calling someone a contractor is not the end of the question. The real relationship still matters.
What Misclassification Can Cost a Worker
When a worker should have been an employee, the missed protections can add up. Recovery depends on the facts, but common categories include:
- Unpaid overtime and minimum wage, the core of most California wage and hour claims.
- Premiums for missed meal and rest breaks.
- Reimbursement of business expenses under Labor Code section 2802, such as mileage, tools, and phone costs.
- No workers’ compensation coverage for an on-the-job injury.
- Payroll-tax problems, because the employer did not pay its share and the worker carried a heavier tax burden.
These are categories, not promises. A lawyer can review your pay records and estimate what may apply to your situation.
Willful Misclassification Penalties
California also penalises willful misclassification. Under Labor Code section 226.8, willful misclassification means avoiding employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor.
Where the Labor and Workforce Development Agency or a court determines that a person or employer engaged in an enumerated violation, the person or employer is subject to a civil penalty of not less than $5,000 and not more than $15,000 for each violation, in addition to any other penalties or fines permitted by law. Higher penalties apply where a pattern or practice is found.
The section also prohibits charging a willfully misclassified worker a fee, or making deductions from compensation, for things such as goods, materials, space rental, services, government licences, repairs, equipment maintenance, or fines — where those acts would have violated the law had the individual not been misclassified.
Section 226.8 was amended by Assembly Bill 1170 effective January 1, 2026, so the current text is worth checking rather than relying on older summaries. These penalties are separate from the wages, premiums, and expenses a worker may be owed, and they can be pursued through the Labor Commissioner or the courts. For a business, that is a strong reason to get classification right before a problem surfaces.
Exempt Versus Nonexempt: Salary Misclassification
Being paid a salary does not automatically make you exempt from overtime. That is a common mistake. To be exempt, an employee generally must meet two conditions, not just one.
- Pay: the employee generally must earn a salary of at least twice the state minimum wage for full-time work. California’s state minimum wage rose to $16.90 per hour on January 1, 2026, which puts the minimum exempt salary at $70,304 a year, or about $1,352 a week.
- Duties: the employee must actually perform exempt executive, administrative, or professional duties. A job title alone is not enough.
If a salaried worker does not meet both, they may be a misclassified nonexempt employee who is owed overtime and breaks. Some exemptions carry their own higher pay thresholds, so the applicable figure is worth confirming for the specific role.
Local Minimum Wages on the Peninsula
The state figure is a floor. Many San Mateo County and Bay Area cities set local minimum wages above it, and where a local ordinance applies, employers must pay the highest applicable rate for work actually performed in that location. As of January 1, 2026 that includes Belmont at $18.95, East Palo Alto at $17.90, Burlingame at $17.86, Foster City at $17.85, and Daly City at $17.50, among others.
Two practical consequences follow. Unpaid minimum wage claims for hourly work have to be measured against the correct local rate rather than the state figure. And because rates change on different dates in different cities, a business operating across several Peninsula jurisdictions is more exposed to an inadvertent shortfall than one operating in a single city. Local rates should be confirmed against the ordinance rather than assumed.
How Misclassification Claims Are Pursued
There is usually more than one path. An individual can bring an unpaid wage claim through the Labor Commissioner or in court, and Labor Code section 1194 allows recovery of attorney’s fees and costs on some wage claims.
When many workers are affected, claims may be pressed as a class action or under PAGA, the Private Attorneys General Act, which lets an aggrieved employee pursue civil penalties on behalf of the state. PAGA has its own notice procedure. These larger matters often overlap with our California civil litigation practice.
Time limits apply and vary by claim type, so it helps to act promptly rather than assume a deadline is distant.
For Employers: Classify, Audit, and Defend
Classification is a legal test, not a preference. A signed contractor agreement helps document the relationship, but the actual facts control. Employers who assume a contract settles the question can be surprised by a wage claim or an audit.
Auditing existing roles against the ABC test, and confirming when the Borello standard applies, reduces exposure to section 226.8 penalties and back-pay claims. Where a role does not pass, reclassifying early is usually cheaper than defending later. When an EDD or Labor Commissioner audit or a misclassification claim does arrive, it needs a measured and well-documented response.
Misclassification Claims in San Mateo and on the Peninsula
Our office at 15 North Ellsworth Avenue, Suite 105, San Mateo, CA 94401 works with workers, executives, and employers across the Peninsula. Two local patterns come up often.
Contractor arrangements are common in the technology and professional services sectors here, and part B of the ABC test — whether the work falls outside the usual course of the company’s business — is frequently where those arrangements fail rather than part A. And multi-city operations run into the local minimum wage patchwork described above, which is a distinct exposure from classification itself.
Details about the office are on our San Mateo page.
How We Help
We represent both sides of these disputes. For workers, we assess whether you were misclassified, calculate the categories of pay and expenses you may be owed, and pursue a claim through the Labor Commissioner, PAGA, or court — often on a contingency basis, so there is no upfront cost.
For employers, we audit and structure contractor relationships, draft agreements that reflect the real work, and defend audits and misclassification claims, usually on an hourly basis. Misclassification is one piece of a larger area, and our California employment lawyers can help with the rest.
Whether you think you were misclassified or you run a business that wants to get classification right, a short conversation can tell you where you stand. Call 650-250-0705 or schedule a consultation. The consultation is free.
This page provides general information about California law and is not legal advice; reading it or contacting the firm does not create an attorney-client relationship. Wage figures and statutory penalties are adjusted from time to time and should be confirmed for the applicable year and locality. Every situation is different, and prior results do not guarantee a similar outcome.
Reviewed by Alan D. Khalfin, Partner and Managing Attorney, Vaksman Khalfin, PC (admitted in California). Last reviewed: 08/25/2026
Employee Misclassification Frequently Asked Questions
Start with the ABC test in Labor Code section 2775, which presumes you are an employee unless the hiring business proves all three parts. If the company controls how you work, if your work is part of its usual business, or if you do not run an independent trade serving other clients, you are likely an employee regardless of what your contract says. Some occupations are carved out and judged under the Borello standard instead.
A three-part test in Labor Code section 2775 that a hiring business must satisfy in full to treat someone as an independent contractor: the worker is free from the company's control and direction; the work is outside the usual course of the company's business; and the worker is customarily engaged in an independently established trade of the same nature. Failing any one part means the worker is an employee.
Depending on the facts, categories can include unpaid overtime and minimum wage, premiums for missed meal and rest breaks, reimbursement of business expenses under Labor Code section 2802, and consequences flowing from the lack of workers' compensation coverage and payroll tax treatment. These are categories rather than a promise of a figure, and a lawyer can review your records to estimate what applies.
Under Labor Code section 226.8, an employer determined to have willfully misclassified a worker is subject to a civil penalty of not less than $5,000 and not more than $15,000 per violation, in addition to other penalties permitted by law, with higher penalties where a pattern or practice is found. The section also bars charging a misclassified worker fees or making deductions for items an employee would not pay for.
Yes. A salary alone does not make you exempt. For 2026 the minimum exempt salary is $70,304 a year, calculated at twice California's $16.90 state minimum wage for full-time work, and the employee must also actually perform exempt executive, administrative, or professional duties. If either condition is not met, the employee may be owed overtime and breaks.
The exempt salary figure is calculated from the state minimum wage. Local ordinances that set a higher hourly minimum affect what must be paid for hourly work performed in that city. Because several Peninsula cities exceed the state rate, the applicable local ordinance is worth checking for any hourly claim.
Apply the ABC test to the actual work rather than the contract, and confirm whether a statutory carve-out puts the role under Borello instead. Document the relationship, and audit existing roles periodically. Where a role does not pass, reclassifying early is generally less costly than defending a claim or an audit later.
An older multi-factor test that still applies to occupations carved out of the ABC test by statute. Control over the work is a central factor, alongside others. Which test governs depends on the occupation, which is why confirming the applicable standard comes before any classification analysis.
There is usually more than one path. An individual can bring a wage claim through the Labor Commissioner or in court, and Labor Code section 1194 allows recovery of attorney's fees and costs on some wage claims. Where many workers are affected, a class action or a PAGA claim may be available, and PAGA has its own notice procedure.
For workers, these matters are often handled on a contingency basis, so there is no upfront cost. For employers, audit and defence work is usually hourly. We discuss fees before any work begins, and the first consultation is free.
