Unpaid Wages? You may also be owed Penalties and Interest

California Labor Code section 1194.2 applies to lawsuits and Labor Commissioner claims in which an employee sues to recover wages “because of the payment of a wage less than the minimum wage.” As a practical matter, that language applies to any claim where the employee was not paid anything for the work performed because, in such situations, the employee was clearly not paid the minimum wage.

California Labor Code section 1194.2(a) provides that employees who prevail in such cases are entitled to recover penalties known as “liquidated damages.” These penalties are equal to the unpaid wages plus interest. In other words, if an employee shows that they were not paid anything for the work performed, and that they are owed $10,000 in unpaid wages and $1,000 in interest, that employee can also recover an additional $11,000 in liquidated damages.

However, California Labor Code section 1194.2(b) provides that employers may have a defense to a claim for liquidated damages “if the employer demonstrates to the satisfaction of the court or the Labor Commissioner that the act or omission giving rise to the action was in good faith and that the employer had reasonable grounds for believing that the act or omission was not a violation of any provision of the Labor Code relating to minimum wage, or an order of the commission, the court or the Labor Commissioner may, as a matter of discretion, refuse to award liquidated damages or award any amount of liquidated damages not exceeding the amount specified in subdivision (a).”

In Iloff v. LaPaille, the California Supreme Court addressed the question of what an employer must show to avoid liquidated damages under Labor Code section 1194.2(a). The Court first reviewed the history of section 1194.2 and the purpose of the statute. The Court then held that to establish the good faith affirmative defense, an employer must show that it made an attempt to determine what the law required. The Court further held that the form and extent of the required attempt would vary depending on the context. However:

“[T]he burden is on the employer to show it made an attempt to determine what the law required that was reasonable under the circumstances and a good faith effort to comply with the requirements of the law.”

The Court noted that while liquidated damages may serve to both punish bad behavior and to deter future violations, they are also “damages” that are paid directly to the employees. In this sense, liquidated damages serve to compensate the employees for damages caused by the violations that would otherwise be too hard to calculate.

Finally, the Court noted that trial courts could reduce or eliminate liquidated damages under section 1194.2 only if the employer had met its burden of proof as to the good faith affirmative defense. When an employer fails to meet that burden, trial courts cannot reduce the liquidated damages.

What about the Naranjo Decisions?

The holding in Iloff is notably different from the California Supreme Court’s decisions in the Naranjo v. Spectrum Security Services, Inc. cases, handed down in 2022 and 2024. In the first Naranjo decision, the Court concluded that extra premium pay for missed meal and rest breaks breaks (Lab. Code, § 226.7) is wages that must be reported on wage statements (Lab. Code, § 226) and paid in a timely manner when an employee leaves a job (Lab. Code, § 203). (Naranjo I.)

However in Naranjo II, the Court held that Naranjo was not entitled to recover penalties for wage statement violations because the defendant’s violations were not “knowing and intentional” (Lab. Code, § 226(e). Furthermore, Naranjo was not entitled to recover waiting time penalties for late payment of final wages because it did not act “willfully” (Lab. Code, § 203). Put another way, an employer that has a reasonable and good faith belief that it is complying with the law, even it if is mistaken, is not liable for penalties under either Labor Code section 203 or Labor Code section 226.

However, the Naranjo decisions analyzed requirements that are not present in section 1194.2. Specifically, section 1194.2 does not require a showing of willfulness, or that the actions were “knowing and intentional” for an employee to prevail. Rather, it requires that an employer show that its actions were taken in good faith and that the employer had reasonable grounds for them. The Naranjo standards therefore do not apply.

Please feel free to contact the experienced wage and hour attorneys at Hunter Pyle Law, PC if you have questions about your right to unpaid wages under California law. We can be reached at inquire@hunterpylelaw.com or (510) 444-4400.

Failure to pay Arbitration Fees: What’s left after Hohenshelt v. Superior Court?

More and more employers are forcing workers to sign arbitration agreements that prevent the workers from suing in court. Instead, the workers are forced into arbitration, where they are much less likely to prevail, and, even if they do prevail, their awards tend to be lower than jury verdicts.

The Problem: Employers not paying Arbitration Fees

Arbitration also creates another problem: In California, employers are required to pay for the costs of the arbitrators. Some employers realized that if they stopped paying the arbitrator, the arbitrator would stop working. This created a nightmare situation for workers who were then caught in limbo: unable to sue in court and unable to proceed in arbitration.

In 2019, the California Legislature passed Senate Bill No. 707 in response to “a concerning and troubling trend” in consumer and employment arbitrations: “employers are refusing to pay required fees to initiate arbitration, effectively stymieing the ability of employees to assert their legal rights.” (Sen. Judiciary Com., Analysis of Sen. Bill No. 707 (2019–2020 Reg. Sess.) as amended Apr. 11, 2019, p. 6 (Senate Judiciary Committee Analysis); Sen. Rules Com., Off. of Sen. Floor Analyses, 3d reading analysis of Sen. Bill. No. 707 (2019–2020 Reg. Sess.) as amended May 20, 2019, p. 4 (Senate Rules Committee Analysis).)

In so doing, the Legislature documented instances in which companies faced large numbers of individual arbitration demands and then failed to timely pay arbitration fees, thereby frustrating adjudication of their employees’ claims. (Sen. Judiciary Com. Analysis, supra, at pp. 6–7.) To give just one example of this phenomenon, 2,800 Chipotle workers filed a class action against Chipotle in 2013 and were ordered to individually arbitrate their claims. Chipotle then frustrated the efforts of its employees to have their claims adjudicated by failing to pay its share of the applicable filing fees. Six years later not a single claim had been heard.

The Solution: Senate Bill 707

Senate Bill 707 added certain provisions to the California Arbitration Act. For example, it provides that where “an employment or consumer arbitration … requires … the drafting party” to “pay certain fees and costs,” those fees or costs must be “paid within 30 days after the due date.” If the fees are not timely paid, an employee may then return their claims to court and require the defendant to pay their attorneys’ fees and costs.

Hohenshelt and Beyond

Employers immediately challenged Senate Bill 707, claiming that it was preempted by the Federal Arbitration Act. In August 2025, the California Supreme Court addressed this argument in the case of Hohenshelt v. Superior Court (2025) 18 Cal.5th 310.

The Hohenshelt Court concluded that Senate Bill 707 was not preempted. However, to reach this conclusion, it rejected the plaintiff’s argument that Senate Bill 707’s language had to be read strictly. Instead, Senate Bill 707 was to be read in harmony with background statutes and principles that allow relief from forfeiture where nonperformance is not willful, fraudulent, or grossly negligent.

In light of this holding, the Hohenshelt Court directed the Court of Appeal “to remand the matter to the trial court for consideration of whether [the employer] may be excused for its failure to timely pay arbitration fees, such that the stay of litigation should not be lifted and the parties should be returned to arbitration, and whether the delay resulted in compensable harm to [the employee].”

So what is left after Hohenshelt? To start with, an employee does not have to show that they were prejudiced by an employer’s failure to timely pay arbitration fees to prevail on a motion under Senate Bill 707. The California Supreme Court rejected that argument in 2024 in the case of Quach v. California Commerce Club, Inc. (2024) 16 Cal.5th 562.

However, that employee will have to show that the employer acted willfully, fraudulently, or with gross negligence. An example of this would be an employer willfully withholding the fees necessary to proceed in arbitration. “But short of such wrongful conduct, a breaching party may be relieved from forfeiting its right to enforce an arbitration agreement based on the circumstances….” Hohenshelt, 18 Cal.5th at 346.

The fallout from Hohenshelt can be seen in the case of Wilson v. Tap Worldwide, LLC (Cal. Ct. App., Sept. 22, 2025, No. B334533) 2025 WL 2802617, at *2, as modified (Oct. 2, 2025). In that case, the trial court had found that the employer was late in paying the arbitration fees, vacated the order compelling arbitration, and awarded over $300,000 to the plaintiff’s attorneys. However, after Hohenshelt the Court of Appeal asked for supplemental briefing. The Court of Appeal then reversed the award of attorneys’ fees because, as a matter of law, the defendant’s untimely payment was not willful, grossly negligent, or fraudulent.

If you have questions about your rights at work, please feel free to contact Hunter Pyle Law, PC, to make use of our free and confidential intake process. We look forward to hearing from you.

Drea Núñez to Present at Workers’ Rights Clinics

Drea Núñez is set to present at Legal Aid at Work’s Workers’ Rights Clinic. On July 30, 2025 at 5pm, Drea will present on “Barriers to Employment.” This is the third year in which Drea has been invited to present on this topic for the Clinic.

The Workers’ Rights Clinic provides low-income and unemployed people with free, confidential information about their legal rights related to work in California. The Clinic trains law students on various employment law issues through a series of trainings like those that Drea is providing this semester. During the Clinic, the law students conduct client intakes and then consult with supervising attorneys to provide clients with information and potential next-steps. The Workers’ Rights Clinic has twelve locations and provides services to workers across all of California.

Drea has been a volunteer at the Workers’ Rights Clinic since 2017. Drea began her work with the Clinic her first year of law school as a Clinic counselor. She then moved on to become a Clinic director. Since Drea obtained her law license, she has been a regular supervising attorney for the Clinic. She has also previously presented at the Clinic on Discrimination & Harassment and Workplace Torts & Privacy.

The Transportation Worker Exemption and Warehouse/Distribution Center Workers

This blog post contains important information for people are warehouse and distribution center workers, as well as other workers who are involved in interstate or international commerce.

It is the third in a series of blog posts regarding the Transportation Worker Exemption (TWE), which exempts certain workers from the Federal Arbitration Act (FAA). The TWE is important because the FAA has been found to invalidate many laws and doctrines that, before they were struck down, protected employees and consumers from unfair arbitration agreements.

However, if an employee falls within the TWE, then the FAA does not apply. That means that the laws and doctrines that protect employees and consumers are not preempted by the FAA, and the employee is free to make use of them.

The Transportation Worker Exemption and Warehouse Workers

After the United States Supreme Court’s decision in Southwest Airlines Co. v. Saxon (2022) 596 U.S. 450, there is no question that workers who are actually engaged in foreign or interstate commerce fall within the TWE. That is true even if they work for a company that is not, strictly speaking, a transportation company. See Bissonnette v. LePage Bakeries Park St., LLC (2024) 601 U.S. 246. It is also true even if they are designated as “independent contractors” or “contractor drivers.” See New Prime Inc. v. Oliveira (2019) 586 U.S. 105.

However, workers who are “intimately involved” with interstate commerce, but do not themselves cross state or national borders, may also qualify for the TWE. In California, that may include warehouse and distribution center workers.

For example, in Ortiz v. Randstad Inhouse Services (9th Cir. 2024) 95 F.4th 1152, the court held that warehouse workers who transported Adidas products to and from storage racks within a warehouse were subject to the TWE. Ortiz is an important case because it clarifies that the workers at issue do not need to move goods out of a facility to fall within the scope of the TWE. To the contrary, such workers can play a direct and necessary role in the interstate commerce of goods. However, importantly, the workers in Ortiz actually handled the goods “near the very heart of their supply chain. In each case, the relevant goods were still moving in interstate commerce when the employee interacted with them, and each employee played a necessary part in facilitating their continued movement.”

Ortiz therefore torpedoes the reasoning in an earlier district court case, Lopez v. Nordstrom, Inc. (C.D. Cal. 2024) 2024 WL 3464170 (finding warehouse distribution center employee was not a transportation worker because his work “appear[ed] to focus most on handling [ ] garments, either packing them into boxes, sorting them, or hanging them up”). After Ortiz, such a worker would probably qualify for the TWE.

Similarly, in Nair v. Medline (9th Cir. 2024) 2024 WL 4144070, the Ninth Circuit Court of Appeals found that workers who packaged, moved, loaded, unloaded, and shipped medical supplies to interstate customer qualified for the TWE. The plaintiff in Nair alleged that she alleged that she worked every day in the “shipping dock” where she “spent 100% of [her] time stacking pallets and wrapping them in saran wrap to load onto trucks.” She also alleged that she loaded the delivery trucks every day with pallets that were prepared for shipping to destinations in and outside of California. The court found that because she packaged and loaded goods that traveled in interstate commerce, the plaintiff fell within a class of worker that plays a direct and necessary role in the free flow of goods across borders.

However, a 2024 district court case reached the opposite conclusion. In Villasenor v. Dollar Tree (C.D. Cal. 2024) 2024 WL 4452853, a judge in California’s Central District found that workers who merely provide administrative support at a warehouse do not fall within the scope of the TWE. In that case, the defendant presented evidence that the plaintiff staffed the front desk, answered the phone, and handled paperwork. It was undisputed that she did not physically handle any of the merchandise that was stored in the warehouse.

In light of those facts, the court found that the plaintiff belonged to a class of workers who provide administrative support, and that the relationship between such workers and the distribution of goods was not sufficiently close to establish that their work played a tangible and meaningful role in the progress of such goods in interstate commerce.

California warehouse workers may qualify for the transportation worker exemption, including workers who are designated as “independent contractors.” If you have questions about your rights at work, please feel free to contact Hunter Pyle Law, PC.

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The Transportation Worker Exemption and Last-Mile Drivers

This blog post contains important information for truck drivers, delivery drivers, and other workers who are involved in interstate or international commerce.

It is the second in a series of blog posts regarding the Transportation Worker Exemption (TWE), which exempts certain workers from the Federal Arbitration Act (FAA). The TWE is important because the FAA has been found to invalidate many laws and doctrines that, before they were struck down, protected employees and consumers from unfair arbitration agreements.

The Transportation Worker Exemption and Last-Mile Drivers

For example, in Rittman v. Amazon (9th Cir. 2020) 971 F.3d 904, the Ninth Circuit Court of Appeals found that Amazon’s “last-mile” delivery drivers qualified for the exemption even if the drivers themselves did not cross state lines. That is because there was no suggestion that those drivers only delivered packages that originated in the states in which they were delivered. Rather, as Amazon drivers, they carried goods that moved from one state to another and were in the stream of interstate commerce.

The Ninth Circuit reached a similar conclusion in Romero v. Watkins and Shepard Trucking, Inc. (9th Cir. 2021) 9 F.4th 1097. There, the court found that a truck driver who delivered furniture that often came from out of state was subject to the TWE even though he never crossed state lines.

Finally, in Carmona Mendoza v. Domino’s Pizza (9th Cir. 2023) 73 F.4th 1135, the Ninth Circuit found that drivers who transported ingredients from a supply center in California to pizza restaurants also in California fell within the scope of the TWE. That is because those ingredients were not modified at the supply center. Instead, they were merely repackaged. For that reason, the Carmona case was distinguishable from other TWE cases in which the goods were transformed. Cf. A.L.A. Schechter Poultry Corp. v. United States (1935) 295 U.S. 495; Immediato v. Postmates, Inc. (1st Cir. 2022) 54 F.4th 67.

Because the TWE applied to the drivers in these cases, they were not bound by the arbitration agreements that they had signed. Accordingly, they could proceed with their class and collective actions.

California truck drivers and delivery drivers have rights that other employees do not enjoy. That includes drivers who are designated as “independent contractors” or “contractor drivers.” If you have questions about your rights at work, please feel free to contact Hunter Pyle Law, PC.

The Transportation Worker Exemption and California Employees: Introduction

This blog post contains important information for truck drivers, delivery drivers, warehouse workers, airport workers, and other kinds of workers who are involved in interstate commerce. This is the first of a series of blog posts regarding the Transportation Worker Exemption (TWE) found in the Federal Arbitration Act (FAA).

The TWE is important because the FAA has been found to invalidate a number of laws and doctrines that protect employees and consumers from unfair arbitration agreements, including those that protect employees and consumers from having being forced to to give up their right to file class actions.

What is the Transportation Worker Exemption?

Generally speaking, Section 2 of the FAA provides that arbitration agreements are valid, irrevocable and enforceable. However, Section 1 of the FAA includes the following language:

“but nothing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”

(9 U.S.C. § 1)

In other words, the FAA does not apply to workers engaged in “interstate commerce.” The precise meaning of that term has been hotly contested over the past 25-plus years.

The US Supreme Court and the TWE

The United States Supreme Court has considered the TWE in a number of cases. Over the past 25 years, the Court’s rulings regarding the TWE have shifted from very conservative to somewhat better for workers.

For example, in 2001, the Supreme Court decided Circuit City Stores, Inc. v. Adams (2001) 532 U.S. 105. Applying some fancy Latin guidelines for interpreting statutes, the Court read the general phrase “class of workers engaged in … commerce” to be limited to transportation workers.

But in a pleasant surprise, in recent years the Supreme Court has been relatively good on the TWE. For example, in New Prime Inc. v. Oliveira (2019) 586 U.S. 105, the Court held that it was for judges, not arbitrators, to decide whether the TWE applies in a given case. The Court then held that the TWE extends to workers who are classified as independent contractors and not employees.

Then, in 2022, the Supreme Court decided Southwest Airlines Co. v. Saxon (2022) 596 U.S. 450. In that case, the Court concluded that a ramp supervisor who “frequently load[ed] and unload[ed] cargo” from airplanes belonged to a “class of workers engaged in foreign or interstate commerce.” In other words, the TWE extends to workers who do not themselves actually transport goods across state or international borders.

The Saxon Court further held that a “class of workers” is properly defined based on what a worker does for an employer, “not what [the employer] does generally.” The Court then underscored that holding in a 2024 case called Bissonnette v. LePage Bakeries Park St., LLC (2024) 601 U.S. 246.

After Saxon and Bissonnette, the test for determining whether a worker is subject to the TWE consists of two questions:

What class of workers does the worker actually belong to?
- This question focuses on the job duties of the worker, not on what the employer does generally.
Does that class of workers engage in foreign or interstate commerce?
- This question focuses on whether the worker is “intimately involved” with interstate commerce. In other words, is includes workers who do not themselves transport goods across state lines.

Developing Law Regarding the TWE

The Supreme Court’s recent holdings have given rise to a series of questions regarding the scope of the TWE, including the following:

Does the TWE apply to “last-mile drivers?
Does the TWE apply to warehouse workers?
If the TWE applies, and the FAA does not apply, then does the California Arbitration Act apply and, if so, what does that mean?
Does the TWE apply to workers who form business entities like corporations and LLCs?

These issues will be explored more fully in the next four blog posts on this topic.

If you are a driver, or a warehouse worker, or someone who works at airports or otherwise handles interstate commerce, and have questions about your rights in the workplace, please feel free to contact Hunter Pyle Law, PC, and make use of our free and confidential intake process. We can be reached at inquire@hunterpylelaw.com, or at (510) 444-4400.

“Headless” PAGA Cases: Can a worker disclaim individual PAGA claims in order to avoid arbitration?

A fascinating issue has arisen under California’s Private Attorneys General Act (PAGA): can a worker bring a “headless” PAGA case, in which she disclaims her individual PAGA claims in order to proceed in court on PAGA claims for all other workers? This issue will likely bedevil trial courts until the California Supreme Court resolves it, which, hopefully, will be soon (see below).

The headless PAGA claim question has arisen because many employers are forcing employees to sign arbitration agreements that waive their right to bring class actions. As a result, if those employees want to bring representative claims on behalf of a larger group of workers, they are left with PAGA claims for civil penalties that otherwise could only be recovered by California’s Labor and Workforce Development Agency.

Why headless PAGA claims?

Abitration of wage and hour claims may sound like a good idea: employers tout it as speedy and efficient. In reality, it is anything but. It often takes up to half a year to even select an arbitrator. Then, if that arbitrator is busy, they may not have time to hear the case for years.

Furthermore, appeals from arbitration awards are extremely limited. If a trial court judge gets a legal issue wrong, you can appeal it. If an arbitrator makes the same mistake, you are, generally speaking, stuck with it.

Finally, arbitrators’ decisions are normally binding once the case returns to the trial court. For example, in Rodriguez v. Lawrence Equipment, Inc. (October 10, 2024, 2d DCA, Division 3), the trial court compelled the plaintiff to arbitrate his individual, non-PAGA claims. The plaintiff then lost on those claims in arbitration. The employer then moved for judgment on the pleadings as to the PAGA claims, arguing that they should be dismissed. The trial court granted the motion, and the court of appeal agreed: The trial court had properly found that the arbitration award and resulting judgment precluded the plaintiff from relitigating the Labor Code violations to prove standing to maintain his PAGA cause of action.

For these reasons, many workers who have valid wage and hour claims would prefer to avoid arbitration and to proceed directly in court.

In 2023, in the case of Adolph v. Uber, the California Supreme Court considered a question raised by the US Supreme Court in Viking River Cruises, Inc. v. Moriana: does a worker who is required to arbitrate their individual PAGA claims retain standing to bring PAGA claims on behalf of the other workers? The California Supreme Court held that the answer to this question is yes. To have standing under PAGA, a worker need only meet two requirements: (1) they must have been employed by the alleged violator, and (2) they must have experienced one or more of the alleged violations. Therefore, “where plaintiff has brought a PAGA action comprising individual and non-individual claims, an order compelling arbitration of the individual claims does not strip the plaintiff of standing as an aggrieved employee to litigate claims on behalf of other employees under PAGA.” 14 Cal.5th 1104, 1114.

Adolph thus opened the door to the possibility of workers bringing PAGA cases in which they only sought PAGA penalties on behalf of other workers. Numerous cases followed that explored the viability of such “headless” PAGA cases.

Recent decisions of the California Courts of Appeal

The first of these cases was Balderas v. Fresh Start Harvesting, Inc. (April 18, 2024, 2d DCA, Div. 6). In that case, the trial court, on its own motion, found that the plaintiff had not brought individual PAGA claims. The trial court therefore concluded that the plaintiff had no standing to bring PAGA claims on behalf of other workers. Division Six of the Second District Court of Appeal reversed, holding that employees can meet the standing requirements of PAGA (described above) without bringing individual PAGA claims.

If Balderas is right on this issue, then workers who wish to bring PAGA claims but have signed arbitration agreements can avoid arbitration by disclaiming any individual PAGA claims. Those workers can thus keep their non-individual cases in court, where they will be free to pursue PAGA claims on behalf of other workers.

Approximately eight months later, however, Division One of the Second District Court of Appeal disagreed with the holding in Balderas. In Leeper v. Shipt, Inc. (December 30, 2024, 2d DCA, Div. 1), the court of appeal held that every PAGA action includes both an individual PAGA claim and a representative PAGA claim because Labor Code section 2699(a) defines a PAGA claim as “a civil action brought by an aggrieved employee on behalf of the employee and other current or former employees.” The court reasoned that that “and” is important, and so a plaintiff cannot disclaim their individual PAGA claims.

If Leeper is right, then workers cannot disclaim their individual PAGA claims. If those workers have signed valid arbitration agreements, then they must pursue their individual PAGA claims in arbitration before bringing the non-individual PAGA claims in court.

Another court of appeal weighed in shortly after Leeper. In Rodriguez v. Packers Sanitation Services Ltd. (February 26, 2025, 4th DCA, Div. 1), the Fourth District Court of Appeal considered this same issue, and sided with Balderas, holding that workers can disclaim their individual PAGA claims and thereby avoid having to arbitrate their individual PAGA claims.

The Rodriguez court reached this holding by rejecting Leeper, on the grounds that the language from Labor Code section 2699(a) quoted above means only that a PAGA complaint should contain an individual PAGA claim. The court further suggested that the proper way for an employer to challenge a headless PAGA case was through a motion attacking the pleadings, not through a motion to compel arbitration.

The California Supreme Court grants review

On April 16, 2025, the California Supreme Court decided that enough was enough. On its own motion, the Court granted review of Leeper. The Court limited the issues to be briefed and argued to the following:

Does every PAGA action necessarily include both individual and non-individual PAGA claims, regardless of whether the complaint specifically alleges individual claims?
Can a plaintiff choose to bring only a non-individual PAGA action?

Interestingly, the Court denied all requests for depublication of Leeper pending review. Instead, the Court noted that the court of appeal’s decision could be cited, not only for its persuasive value, but also for the limited purpose of establishing the existence of a conflict in authority that would in turn allow trial courts to exercise discretion to choose between sides of any such conflict.

What are trial courts to do?

Not surprisingly, give the disagreement between the courts of appeal, trial courts have reached different conclusions regarding headless PAGA cases.

For example, in Los Angeles County Superior Court, five judges have considered this issue. Four agreed with Leeper. One disagreed. In Santa Barbara Superior Court and Fresno Superior Court, the judges have followed Balderas. And in Alameda County Superior Court, one judge followed Leeper, compelled the individual claims to arbitration, but did not enter a stay regarding the PAGA claims of the rest of the workers.

Therefore, it is somewhat of a roll of the dice as to whether to pursue headless PAGA claims. Trial courts will almost certainly continue to disagree as to whether to allow such claims until the California Supreme Court resolves the issue.

The lawyers at Hunter Pyle Law, PC, are experts at bringing claims under PAGA. If you have a question about your rights at work, please feel free to make use of our free and confidential intake process. We can be reached at inquire@hunterpylelaw.com.

Independent Contractors vs. Employees: Key Differences Under California Law and Why It Matters

Under California law, a person paid to provide labor or services is an employee, unless they meet all three of the following conditions:

(A) The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.

(B) The person performs work that is outside the usual course of the hiring entity’s business.

(C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

A classic example used to illustrate the “ABC test”¹ above is the example of a plumber. If a plumber that works on their own is hired by a law firm to fix a broken pipe, that plumber is not an employee of the law firm. The law firm will not tell the plumber how they must fix the pipe, as long as the plumber does it well. The plumber is not performing work that is usually done by a law firm, as a law firm does not perform pluming work. The plumber is performing work that is part of their own existing plumbing business. The law firm may have heard of the plumber through the plumber’s ads or business cards. Thus, the plumber in this example meets the test above and is an independent contractor.

However, if that same plumber is hired by a plumbing company, then that plumber may be an employee of the plumbing company. The plumbing company may tell the plumber during which times they must be available, what types of materials to use, and even what uniform to wear while they work. The plumber is also performing work that is part of the plumbing company’s usual course of business. The plumber is performing work for the business and not for themselves. In this example, the plumber is an employee because the three requirements in the ABC test were not met.

Why does it matter?

Misclassification deprives workers of their fundamental rights.

Independent contractors are not subject to the same wage and hour laws as employees. For example, independent contractors are not guaranteed a minimum wage, overtime, or meal and rest periods. Similarly, independent contractors do not have the right to a workplace that is free from harassment and discrimination. Nor do independent contractors have the right to a safe workplace, or to form a union.

Independent contractors also generally do not qualify for workers’ compensation if they get hurt on the job, or unemployment insurance if they get laid off.

Misclassification harms women and people of color.

The industries where misclassification is most common—construction, home health care, shipping and delivery, driver services (like Uber and Lyft), and janitorial services—are also the industries in which women and people of color are disproportionately represented. According to one study, seven out of eight occupations in which misclassification is common are held mainly by women and people of color.²

Misclassification shifts the burden to state and local governments.

When companies convert employees into independent contractors, they drastically reduce the amount of money that they have to pay by way of employment-based taxes. For example, employers are required to pay taxes that help to fund Social Security and Medicare. They also have to help pay for unemployment insurance and workers compensation. According to the Economic Policy Institute, these taxes and benefits “can add as much as 30% or more to a worker’s total costs.”³ Companies that utilize independent contractors do not pay into the social safety net in this same manner. As a result, they effectively shift the cost of these important benefit programs to the taxpayers.

Misclassification can have a ripple effect.

Misclassification makes it harder for companies that want to do the right thing and pay their employees a living wage. When a company misclassifies an employee as an independent contractor, it gains an unfair advantage over its competitors. Even though it is illegal to do so, those companies are able to slash their overhead. This forces the companies competing with them to also reduce their costs. As a result, misclassification effectively pressures other businesses to follow suit.

Footnotes:

The “ABC test” was established by Dynamex Operations W. v. Superior Court (2018) 4 Cal.5th 903 and codified into law by AB5 in 2019. ↩︎
See Alexander, Misclassification and Antidiscrimination: An Empirical Analysis (2017) Minn. Law Rev. 907, 910. ↩︎
See Economic Policy Institute, Rhinehart, et al., Misclassification, the ABC test, and employee status: The California experience and its relevance to current policy debates (June 16, 2021). ↩︎

Get in touch:

If you have questions about whether you are an employee or independent contractor, feel free to contact Hunter Pyle Law for a free, confidential consultation by calling (510)-444-4400 or emailing inquire@hunterpylelaw.com.

The New PAGA: Stacking, Injunctive Relief, and Heightened Penalties for Bad Actors

California’s Private Attorneys General Act (PAGA) allows workers to join together to collect civil penalties when their employers violate the Labor Code. With the rise of arbitration agreements that prevent workers from bringing class actions, PAGA plays a critical role in protecting workers by allowing them to join together in representative actions seeking such penalties.

PAGA was amended in three ways in 2024 that help workers do just that. First, it is now clear that PAGA allows “stacking,” or multiple PAGA penalties arising from the same conduct, in some circumstances. Second, PAGA now allows workers to get injunctive relief from the courts barring their employers from continuing to violate the law. Finally, PAGA provides for heightened civil penalties against bad actors.

1. Stacking

Prior to the 2024 amendments, it was unclear whether workers could stack PAGA penalties, meaning get more than one PAGA penalty for a single act by the employer. (For example, it was not clear whether workers were entitled to one or three penalties if an employer failed to credit a worker for all hours worked, resulting in unpaid overtime, a failure to provide a meal period, and an inaccurate wage statement.)

Under the new PAGA, Labor Code section 2699(h)(3)(i) now explicitly prohibits stacking of PAGA penalties for violations of sections 201-203, 204, and 226. However, by expressly stating that stacking is not available in these limited circumstances, the statute now implicitly allows stacking in other circumstances.

This is thanks to the fancy Latin phrase “expressio unius est exclusio alterius,” which provides that the express reference to one thing excludes other things. Applying that concept here, the Legislature expressly provided that stacking was not allowed in certain limited circumstances. There, it is reasonable to conclude that it is generally available in other circumstances.

2. Injunctive Relief

PAGA now allows workers to receive injunctive relief, which means a court order prohibiting employers from doing things that violate the Labor Code. See Labor Code section 2699(e)(1). This is important because injunctive relief is sometimes the only way to get employers to change their conduct. It means that PAGA can now be used more effectively to deter future violations of the law.

3. Heightened Penalties for Bad Actors

Under the new PAGA, civil penalties are increased to $200 for each aggrieved employee per pay period if the employer has been found or determined within the last 5 years by the Labor and Workforce Development Agency (LWDA) or a court to be in violation of the Labor Code provision at issue. See Labor Code section 2699(f)(2)(B). In other words, repeat bad actors will be subject to higher penalties if they continue to violate the law.

The penalties are also increased to $200 if the court determines that the employer’s conduct giving rise to the violation was “malicious, fraudulent, or oppressive.” Ibid. This new standard, which is similar to the standard for punitive damages in other contexts, will also help workers hold bad actors accountable.

Finally, PAGA penalties for employers that have failed to provide an itemized wage payroll statement are not limited by the amendments and are governed by Labor Code section 226.3: $250 per employee per violation in an initial citation and $1,000 per employee for each violation in a subsequent citation.

If you have questions about your rights under the California Labor Code or your ability to bring a PAGA claim, consider contacting an experienced wage and hour attorney today.

Public Employees, Overtime, and the Fair Labor Standards Act

Public employees in California are not covered by many of the state’s wage and hour laws. However, generally speaking, they are covered by the Fair Labor Standards Act, or FLSA. In January 2025, the United States Supreme Court clarified the burden of proof that employers must meet in order to show that employees are exempt from the minimum wage and overtime provisions of the FLSA.

In E.M.D. Sales, Inc. v. Carrera (2025) No. 23-217, the Supreme Court was faced with the following question: do employers need to meet a heightened burden of proof to show that an employee is exempt from the FLSA’s minimum wage and overtime provisions, or is such a claim subject to the “preponderance of the evidence” standard.

The Supreme Court began its analysis with the history of the FLSA, which was enacted in 1938, and pointed out that employers who claim that an employee is exempt from the act have the burden of showing that such an exemption applies. It then considered whether the district court’s holding, that in order to meet that burden, the employer had to show “clear and convincing evidence” that an employee was exempt.

The Supreme Court then noted that the FLSA did not specify the standard of proof for such exemptions. In such cases, courts normally apply the less stringent preponderance of the evidence standard. Furthermore, the Court concluded that FLSA cases of this sort did not involve constitutional rights requiring a heightened standard of proof. Finally, other workplace protections, such as discrimination claims, are subject to the preponderance of the evidence standard.

For all of these reasons, the Supreme Court concluded that the preponderance of the evidence standard applied to employers’ claims that employees are exempt from the minimum wage and overtime provisions of the FLSA. This will make it more difficult for employees, including public employees, to bring such claims going forward.

If you are a public employee with questions about your rights at work, including questions involving overtime, feel free to contact Hunter Pyle Law PC to make use of our free and confidential intake process. We can be reached at (510) 444-4400 or at inquire@hunterpylelaw.com.