Guest commentary: Employ caution with labor law — Tips to prevent misclassification
By Elke Kane
Central Coast courts are increasingly facing labor law claims, with filings rising in recent years. Remote work and changes to employee classification have changed the rules for many people.
At Trusted Legal, we’ve found that most misclassification stems from using outdated assessments and evolving job responsibilities, not intentional violations.
However, those oversights leave a business exposed to significant risk, including back taxes, unpaid wages, meal and rest period premiums, waiting time penalties, attorneys’ fees, and legal battles that can span years.
Here are some steps to help businesses prevent employee misclassification:
THE ABC TEST
One of the most common misclassification issues involves the improper classification of workers as independent contractors rather than employees.
California applies the “ABC test”, which presumes all workers are employees unless the hiring entity satisfies all three prongs: (a) the worker is free from the company’s control and direction in performing the work, (b) the work performed is outside the usual course of the hiring entity’s business, and (c) the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
Prong B creates the most significant hurdle. Although limited exemptions exist for certain occupations, the default presumption of employee status makes contractor arrangements far more difficult to sustain in California than under federal law.
REMOTE WORK IMPACT
The shift to remote and hybrid work requires a re-examination of exempt classifications. Employees whose exemption status was justified by pre-pandemic job duties may no longer satisfy the requirements.
Managers who previously devoted the majority of their time to supervising and directing employees may now perform predominantly individual contributor work, particularly where remote structures reduce direct oversight.
Similarly, employees classified under the administrative exemption based on exercising discretion and independent judgment may now follow standardized procedures and approval workflows in a remote environment. Courts analyze exemptions based on the actual duties performed, not job titles or descriptions.
Employers should conduct duty-specific assessments for remote workers rather than assume prior classifications remain valid.
MULTI-STATE COMPLIANCE
When California employers permit employees to work remotely from other states, classification analysis becomes significantly more complicated.
While California law governs California-based employees, workers residing in other states may be subject to those states’ wage and hour laws, which often differ substantially.
Other states impose varying salary thresholds for exempt status and apply different duties tests, meaning an employee properly classified as exempt under California law may not satisfy another state’s requirements.
These states also have distinct rules governing minimum wage, meal and rest breaks, and independent contractor classification.
Employers with employees residing in different states should evaluate compliance obligations on a state-by-state basis and consider whether their classification practices satisfy the applicable standards.
The best way to prevent misclassifications, of course, is through proactive audits.
Periodic classification audits examining both contractor relationships and exempt status serve as critical risk management tools.
These reviews should focus on actual work performed, reporting relationships, and exercise of independent judgment rather than relying on job titles or historical practice.
The expense of preventive audits and legal review pales in comparison to liability from class actions, PAGA claims, and enforcement by the Labor Commissioner, DOL, or IRS.
Elke Kane is an associate attorney with Trusted Legal, A Professional Law Corp.. Trusted Legal is a Santa Barbara-based firm that specializes in business law, employment law, real estate law, and estate planning, among other practice areas.
