25+ Years Defending CA Employers
Employer-Only Representation
Statewide California
Free 15 min. Consultation
Does This Sound Like Your Situation?
EDD audit notice received
DLSE individual reclassification claim filed
§2775 ABC test civil reclassification class action
1099 contractor wage claim (back wages plus penalties)
Gig worker classification dispute
Joint employer or staffing agency liability (§2810.3)
§226.8 willful misclassification civil penalty claim
Pre-suit cure letter or LWDA notice on classification
What's Actually at Stake
Default Classification Standard for Most Industries
Window for Derivative Wage Restitution
Per-Worker Willful Misclassification Penalty
Hiring Entity Plus Staffing Agency
A single misclassification finding can trigger back wages, overtime, meal and rest premiums, §226 wage statement penalties, §203 waiting time penalties, §2802 expense reimbursement, and PAGA exposure on top of the misclassification penalty itself. The compounding is significant.
Arguing the Relationship vs. Documenting the Structure
Arguing the Relationship
"The contractor signed a 1099 agreement."
"We never controlled their work hours."
"Other companies hired them too."
"They invoiced us."
"They had a business name and an LLC."
Documenting the Structure
§2776 B2B exemption structured against all 12 factors.
Prong B independent course of business established by independent customers and revenue.
Separate business entity, EIN, liability insurance, and licensure on file.
Negotiated contract terms documented, not adhesion paperwork.
Worker exercises business judgment, not just task execution.
"California doesn't care what you called the relationship. It cares what you can document."
How We Defend IC Disputes and EDD Audits
Audit the Current IC Arrangements Against the ABC Test
We pull the contracts, control evidence, and operational practices for each contractor or contractor class. The test applies to each arrangement individually, so the audit has to be granular. Prong B is usually where the case lives or dies.
Identify the Applicable §§2776-2784 Exemption
The exemptions are the cleanest defense lane if you qualify. §2776 (B2B), §2778 (professional services), §2779-2780 (construction), §2783 (licensed professionals) each have specific element tests. We match your facts against the right exemption
Build the Prong B Defense Where No Exemption Fits
For arrangements outside the exemptions, the defense lives in Prong B: the work is outside the usual course of business of the hiring entity. We build that record through business descriptions, revenue analysis, and operational documentation.
Defend the EDD Audit or DLSE Claim in the Right Framework
EDD audits formally use the §621 employment definition, but post-AB5 they default to the ABC test for most industries. DLSE claims use ABC directly. We present the documentation in the framework the agency actually applies.
Restructure Forward-Going Arrangements for Compliance
Defense is the first step; risk reduction is the goal. Once the current matter is contained, we restructure forward-going arrangements to fit cleanly within an exemption or convert problematic ones to W-2 with the lowest exposure pathway.
EDD and IC reclassification matters move fast. The cascade across agencies is real.
Tell us what you received. We'll review it in 15 minutes, free.
Real Scenarios We've Handled
CONSTRUCTION COMPANY
EDD Audit Closed on §2779 Subcontracting Exemption
Situation
General contractor received an EDD audit covering three years of subcontractor relationships. The audit alleged misclassification of multiple specialty subcontractors and projected significant tax liability plus penalties.
Outcome
We documented each subcontractor's licensure, separate entity status, project bidding history, and independent customer base. The §2779 construction exemption applied for the bulk of arrangements. EDD closed the audit with materially reduced exposure.
MARKETING AGENCY
1099 Contractor Class Settled at Limited Scope
Situation
Former freelance designer filed a §2775 civil claim alleging misclassification. The complaint sought class treatment covering all 1099 contractors at the agency over four years.
Outcome
We segregated the contractor population into those falling clearly within the §2778 professional services exemption (graphic designers, freelance writers) and those with weaker positions. The case settled at limited scope covering only the weaker positions, with the §2778-protected contractors carved out.
TRUCKING FIRM
AB5 Class Action Defended on §2776 B2B Carve-Out
Situation
Independent owner-operators filed a class action alleging misclassification under §2775. Trucking has been among the most contested industries under AB5 since AB 2257.
Outcome
We built the §2776 B2B exemption defense for each owner-operator: separate operating authority, separate insurance, customer diversification, negotiated rates. The B2B defense held for the majority of the class. Certification was denied as to the protected drivers.
Past results do not guarantee future outcomes. Every case is different.
Frequently Asked Questions
We've used 1099s for years. Why is this suddenly a problem?
California changed the test in 2018 with the Dynamex decision and codified it in 2019 with AB 5. The ABC test is now the default, and it's significantly stricter than the federal IRS test or the older Borello test. Arrangements that were fine for years can now fail ABC, particularly Prong B if the contractor performs work the company itself does as a core business.
The contractor signed an independent contractor agreement. Doesn't that settle it?
No. California courts and agencies look at the actual relationship, not the paperwork. A 1099 agreement, an LLC structure, or a signed IC acknowledgment doesn't override the ABC test. What matters is whether the work fits within Prong A (control), Prong B (course of business), and Prong C (independent business). All three must be met.
EDD found us non-compliant. Do other agencies use that finding?
Yes, often. EDD findings can trigger DLSE wage claims, PAGA notices, and civil class actions because the misclassification finding crosses agencies. The earlier we defend the EDD audit, the better positioned we are to prevent the cascade. If EDD has already issued an assessment, we may still appeal or limit the cross-agency impact.
We're a B2B services firm. Are we exempt from AB5?
Maybe. Labor Code §2776 provides a B2B exemption with a strict 12-factor test: separate business existence, negotiated contract terms, independent business judgment, customer base beyond the hiring entity, and several others. Meeting most factors isn't enough. The exemption is binary. We audit each arrangement against the 12 factors and tell you honestly which ones qualify.
What's the difference between an EDD audit and a DLSE claim?
EDD audits are tax-focused: payroll taxes, unemployment insurance contributions, employment training tax. DLSE wage claims are wage-focused: back wages, overtime, meal and rest premiums, waiting time. Both can be triggered by the same misclassification but use different procedures and produce different penalties. They often run in parallel and can both lead to civil class actions or PAGA notices.
Got an EDD Audit or IC Reclassification Claim? The Structure Determines the Defense.
California's ABC test makes independent contractor classification harder than anywhere in the country, but the defense lanes exist. The earlier we audit your arrangements and identify which exemption applies, the more we can preserve. Talk to our team. We'll review what you're facing and lay out a defense plan.
Free. No obligation. Responses within 1 business hour. Employer-only representation, never employees.