California Secures $10 Million Settlement Over Home-Care Worker Misclassification

Misclassification Allegations

In a recent enforcement action by the California Department of Justice, the state secured a judgment of over $10 million against Care Specialist HCS Inc. (formerly TLC Home Care Services), and its previous and current owner-operators, for the alleged misclassification of hundreds of in-home care workers as independent contractors in violation of California's labor laws and Unfair Competition Law.

The 2023 lawsuit alleged that the company mislabeled these workers as independent contractors even though the workers were, in practice, de facto employees. They were subject to Care Specialist HCS Inc.'s control—by way of scheduling, pay rates, and a "no-poach" agreement—and their services fell within the company's usual business operations.

In addition to forgone wages, the state further alleged that misclassification caused a loss of tax and employment insurance revenues. The court granted summary adjudication, including over $10 million in restitution and civil penalties as well as permanent injunctive relief barring Care Specialist HCS Inc., and its former and current owner-operators from future employee misclassification attempts.

Attorney General Rob Bonta stated, "This is a clear message to employers in California: Misclassification is wage theft. If you cheat workers by misclassifying them, you will be held accountable."

Employee Classification in California

In California, the default presumption is that a worker is an employee and not an independent contractor under the state's ABC test. To determine if a worker is an independent contractor, California courts look at these three inquiries:

• If the worker 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;

• If the worker performs work that is outside the usual course of the hiring entity's business; and

• If the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

California courts apply these inquiries in the following ways:

The first qualification discusses the degree of control over the employee. A worker who is supervised by a manager and is subject to the level of control most employees experience will likely be considered an employee. On the other hand, if the worker in question has the autonomy to do work in whichever method they see fit without employer training or supervision, they will likely be classified as an independent contractor.

The second condition discusses the relevance of the work completed to the functions of the business. If the worker provides services necessary to the business and comparable to the responsibilities of an existing employee, the worker will likely be viewed as an employee.

The final component of the ABC test determines if the worker performs similar functions for other businesses under other circumstances. Exclusive employment with one entity is more likely to result in employee classification than independent contractor status.

How Do These Standards Apply to the Construction Industry?

Outside of home-care work, many sectors in our economy rely on labor performed by independent contractors. Most notably, perhaps, is the construction industry. The construction sector relies on layered subcontracting, in which a primary contractor hires subcontractors and the process continues, with many workers engaged via 1099 independent contractor labels. When the general contractor hires subcontractors, those workers often complete work analogous to the core functions of the construction firm, and are subject to its scheduling, supervision, tools, and other qualities that would regularly characterize an employee. Here, misclassification may generate wage-and-hour concerns, as employees are entitled to minimum wages, overtime, itemized wage statements, mandated meal and rest breaks, and other benefits not available to independent contractors. By treating workers as independent contractors, companies shift financial and safety risks onto their workers.

Enforcement hurdles pervade the layered subcontracting model: the general contractor may disavow employment relationships, and the subcontractors may lack the financial capacity to advocate for their protections. This dynamic creates downward wage pressure, erodes worker rights, and creates unfair competition for law-abiding firms.

Protecting Your Rights

Recent additions to California labor law have strengthened independent contractor and gig worker protections. However, worker misclassification maintains its prevalence across industries. For decades, attorneys at Miller Shah have represented misclassified workers filing wages and hour claims. In 2023, Miller Shah successfully obtained a $31 million settlement for flight attendants of Alaska Airlines whose mistreatment violated several California labor laws.