[Disclosure: the following is not intended as legal advice and does not create an attorney-client relationship. You should always consult with an attorney about your legal claims and questions relating to time limitations to file your claims.]
Many executives and professionals assume that misclassification as an independent contractor only affects lower-level or gig economy workers. In reality, even high-compensation employees earning six figures or more are frequently misclassified by employers looking to reduce payroll costs, avoid providing benefits, or limit legal liability.
This is especially true in industries like technology, consulting, entertainment, and professional services, where companies sometimes label full-time, high-level workers as “contractors” despite exercising significant control over their day-to-day work. For the worker, misclassification can mean losing out on employee benefits, paying more in taxes, and forfeiting important legal protections under California law.
Understanding the difference between employee and independent contractor status is critical for protecting your rights and financial security, no matter how much you earn.
What Counts as Misclassification in California?
Misclassification occurs when an employer treats a worker who should legally be considered an employee as an independent contractor. Employees are entitled to a range of protections and benefits under California and federal law, while independent contractors do not have as many protections.
Employers may misclassify workers to avoid paying payroll taxes, overtime, unemployment insurance, or providing benefits like health coverage and retirement contributions. But the label on a contract doesn’t determine legal status. California law applies specific tests to determine whether a worker is an employee or contractor, regardless of job title or pay level.
California’s Employee vs. Independent Contractor Tests
California uses two primary tests to determine worker classification: the ABC Test and, in certain contexts, the older Borello Test.
The ABC Test
Under California’s landmark law AB 5 (and its amendment AB 2257), the ABC Test applies to most workers. A worker is presumed to be an employee unless the employer can prove all three of the following:
- The worker is free from the company’s control and direction in performing the work.
- The work performed is outside the usual course of the company’s business.
- The worker is engaged in an independently established trade, occupation, or business.
If the employer cannot satisfy all three parts, the worker is legally considered an employee, not a contractor.
The Borello Test
The ABC test does not apply universally. In certain contexts—most notably where a statutory exemption applies—California courts use the older Borello Test instead. However, the ABC Test now governs most cases.
Red Flags That Your Employer May Be Misclassifying You
Many high-level professionals assume that if their title or pay sounds prestigious, the “independent contractor” label must be legitimate. However, California law considers the reality of the working relationship to determine whether someone is truly an employee, rather than relying on job title or contract language. If you recognize any of the following red flags, your employer may be misclassifying you as a contractor when you should legally be treated as an employee.
Performing the Same Duties as Employees but Labeled a Contractor
If you carry out the same day-to-day responsibilities as full-time employees, such as attending company meetings, reporting to supervisors, using company systems and you’re labeled an independent contractor, this is a major warning sign. California courts and regulators focus on whether your work is part of the company’s regular business operations, regardless of your job title or pay structure.
Lack of Control Over Schedule or Methods of Work Despite “Contractor” Label
Independent contractors are supposed to control how and when they perform their work. If your employer:
- Dictates your schedule;
- Imposes detailed work instructions;
- Requires you to be on-site at certain hours.
This level of control suggests an employment relationship rather than independent contracting.
Restrictions on Working for Other Companies
One hallmark of true independent contractor status is the freedom to provide services to multiple clients or companies. If your contract or employer prohibits you from working elsewhere or imposes noncompete clauses inconsistent with running your own independent business. In that case, you may actually be functioning as an employee under California law.
Receiving Pay Through 1099 Rather Than W-2 Without Clear Justification
Employees receive wages reported on IRS Form W-2, while independent contractors are paid on Form 1099. But simply labeling you a “1099 worker” does not make you an independent contractor in the eyes of the law. If you are paid via 1099 while working long-term, exclusively, or under close supervision for a single company, your classification may be improper.
Misuse of “Consulting Agreements” for Full-Time Roles
Many employers try to disguise employment relationships by calling them “consulting arrangements.” However, if the so-called consultant performs ongoing work that is central to the company’s business and reports directly to management, courts often find that the worker is an employee, regardless of the contract language.
High Compensation Does Not Eliminate the Risks
Earning a six-figure salary or more does not shield workers from the consequences of misclassification in California. Too often, employers assume that labeling executives and high-level professionals as independent contractors will go unchallenged because these individuals have lucrative compensation packages. But the reality is that misclassification can lead to significant financial and legal losses, regardless of income level.
Loss of Employee Benefits
Misclassified workers are ineligible for many employee benefits, including employer-sponsored health insurance, retirement plans, paid time off, and equity incentives such as stock options or restricted stock units (RSUs). Over the course of a career, these lost benefits can amount to hundreds of thousands of dollars in missed value, leaving workers with unexpected out-of-pocket expenses and gaps in long-term financial security.
Lack of Labor Protections
California law provides employees with rights, including overtime pay, expense reimbursements under Labor Code § 2802, protection from wrongful termination, and coverage under wage-and-hour laws. Contractors often receive none of these rights. Misclassified workers lose access to these protections, making it more difficult to recover unpaid wages, challenge unlawful firings, or demand reimbursement for work-related expenses.
Legal and Financial Consequences of Misclassification
Workers who are misclassified may be entitled to substantial compensation under California law, including:
- Unpaid wages and overtime: Employees misclassified as contractors often lose out on overtime pay, missed meal and rest breaks, and other wage protections under the California Labor Code and Industrial Welfare Commission (IWC) wage orders.
- Lack of unemployment and workers’ compensation coverage: Independent contractors cannot collect unemployment benefits or workers’ compensation if injured on the job. Proper classification ensures access to these crucial protections.
- Missed retirement contributions and benefits: Misclassification may mean losing years of employer-sponsored retirement plan contributions, stock options, health insurance coverage, and other fringe benefits offered to employees.
What to Do if You Suspect Misclassification
California workers who believe they have been misclassified as independent contractors should act promptly to protect their rights and preserve evidence.
Speaking with an Employment Attorney
A confidential consultation with an experienced California employment attorney can help you understand your rights, evaluate the strength of your claim, and determine whether you have grounds for legal action. Lawyers can also advise on retaliation protections, as California law prohibits employers from firing or punishing workers who assert their rights under labor laws.
How Rudy, Exelrod, Zieff & Lowe, LLP Can Help
At Rudy, Exelrod, Zieff & Lowe, LLP, we have decades of experience representing executives, professionals, and high-level employees in complex employment law disputes. Our attorneys understand the unique challenges high-compensation workers face when employers misclassify them as independent contractors.
We have recovered significant compensation for misclassified workers, enforced California’s strong labor protections, and held employers accountable for wage-and-hour violations affecting even the most senior-level professionals.
Don’t wait to protect your rights. Contact Rudy, Exelrod, Zieff & Lowe, LLP for a confidential consultation to discuss potential misclassification claims and explore your options for recovery.