Why class actions are the dominant exposure
For most US companies, the single largest financial risk from worker misclassification is not the IRS, not the DOL, and not a state agency. It is a class or collective action brought by current or former contractors. Class actions aggregate small per-worker claims into a single piece of litigation. They carry attorneys’ fees that motivate the plaintiffs’ bar. They can be filed without any prior agency action. And they capture multi-year periods of back pay across hundreds or thousands of workers.
This article surveys the cases and statutes that shape the US class action landscape in 2026. The focus is California because California has the most developed misclassification class action regime in the country and California decisions have shaped national plaintiff strategies. Federal claims under the FLSA, brought as collective actions under 29 USC 216(b), are covered briefly at the end.
Every case is identified by its primary citation and linked to a primary or near-primary source. Where a primary source is paywalled or unreachable, the secondary source is identified as such.
Dynamex Operations West v Superior Court (2018)
The cornerstone case of the modern California misclassification regime is Dynamex Operations West, Inc. v. Superior Court, decided by the California Supreme Court on April 30, 2018. The official citation is 4 Cal.5th 903, 416 P.3d 1, 232 Cal.Rptr.3d 1. The Wikipedia summary, which collects primary references, is at en.wikipedia.org: Dynamex Operations West v. Superior Court.
The case was brought by a class of same-day delivery drivers against Dynamex Operations West, Inc., alleging the drivers had been misclassified as independent contractors. The California Supreme Court held that workers are presumptively employees for the purpose of California’s Industrial Welfare Commission wage orders, and that the burden is on the hiring entity to establish that a worker is an independent contractor.
The court adopted what is now called the ABC test, requiring the hiring entity to prove all three of the following:
- (A) That the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact.
- (B) That the worker performs work that is outside the usual course of the hiring entity’s business.
- (C) That the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.
If the hiring entity fails any one of the three prongs, the worker is an employee under the wage orders. The Dynamex test replaced the multi-factor Borello test for wage order purposes (the Borello test had been the standard since S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341).
Vasquez v Jan-Pro Franchising International (2021)
Dynamex left open the question of whether the ABC test applied retroactively to relationships that pre-dated the 2018 decision. That question was answered in Vasquez v. Jan-Pro Franchising International, Inc., decided by the California Supreme Court on January 14, 2021, on certified question from the Ninth Circuit.
The opinion appears in the California Reports at the publisher’s archive. A summary with the primary citation, including the holding, is at California Workplace Law Blog summary, which links through to the slip opinion.
The court held that the Dynamex ABC test applies retroactively to all cases not yet final as of the date the Dynamex decision became final. The court relied primarily on the fact that Dynamex addressed an issue of first impression and did not change a settled rule on which the parties had relied.
Retroactivity expanded the practical reach of Dynamex by an order of magnitude. Class actions could now look back through the four-year California statute of limitations for wage claims, with the ABC test applying to all the wage order claims in scope, regardless of when the alleged misclassification occurred.
The Ninth Circuit subsequently issued its own opinion in Vazquez v. Jan-Pro Franchising International, Inc., No. 17-16096 (9th Cir. 2021), applying the California Supreme Court’s answer. The Ninth Circuit slip opinion is summarised by the court reporter at law.justia.com: Vazquez v. Jan-Pro 9th Cir. 2021.
AB5 and Labor Code 2775
In response to Dynamex, the California Legislature enacted Assembly Bill 5 (AB5), signed September 18, 2019, effective January 1, 2020. AB5 codified the ABC test into the California Labor Code and extended its reach beyond the wage orders to the Labor Code and Unemployment Insurance Code.
The codified ABC test now appears at California Labor Code Section 2775(b), available at leginfo.legislature.ca.gov: LAB 2775. Section 2775(b)(1) states that a person providing labour or services for remuneration is considered an employee rather than an independent contractor unless the hiring entity demonstrates that all three ABC conditions are satisfied.
Section 2775(a) defines Dynamex and Borello by reference to the underlying decisions.
AB2257 exemptions
Assembly Bill 2257 (AB2257) was enacted in September 2020. AB2257 modified and reorganised the AB5 framework, moving the ABC test to Labor Code Sections 2775 through 2785 and refining the list of exemptions. The exemption sections are 2776 through 2784.
The general structure of the exemptions is that certain occupations and business relationships are removed from the ABC test entirely. For those relationships, the older Borello multi-factor test from S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341 applies. The exemptions cover specific licensed professions, certain creative and professional services, business-to-business relationships meeting defined conditions, and a number of industry-specific categories.
A worker who falls within an exemption is not automatically a contractor. The worker is assessed under Borello, which considers control, integration, skill, tools, length of engagement, payment method, and other factors in a totality-of-the-circumstances analysis. The California Department of Industrial Relations summarises the test at dir.ca.gov: Independent contractor versus employee.
Proposition 22 and Castellanos v State of California
The most contested category of workers under AB5 was app-based rideshare and delivery drivers. Uber, Lyft, DoorDash, Instacart, and other platforms sponsored a successful ballot initiative, Proposition 22, which California voters approved in November 2020.
Proposition 22 added Business and Professions Code Section 7451 and following sections, which classify app-based drivers as independent contractors for purposes of state law, provided the platform meets specified conditions regarding compensation, healthcare contributions, and accidental insurance.
The constitutionality of Proposition 22 was challenged in Castellanos v. State of California (Protect App-Based Drivers and Services), Case No. S279622. The California Supreme Court’s docket and case summary is at supreme.courts.ca.gov: S279622.
The California Supreme Court issued its opinion on July 25, 2024, holding that Proposition 22 is constitutional. The plaintiffs had argued that Section 7451 conflicts with Article XIV, Section 4 of the California Constitution, which grants the Legislature plenary power over workers’ compensation. The Supreme Court held that the Legislature’s plenary power is not exclusive and does not preclude the electorate from enacting legislation through the initiative process.
The practical effect is that app-based rideshare and delivery drivers covered by Proposition 22 remain outside the ABC test for the purposes Proposition 22 covers. Platforms outside the Proposition 22 definition remain subject to the ABC test under Labor Code 2775 and its exemptions.
The Private Attorneys General Act (PAGA) and 2024 reforms
The Private Attorneys General Act, codified at California Labor Code Sections 2698 through 2699.5, authorises aggrieved employees to file representative actions to recover civil penalties for Labor Code violations on behalf of the State of California. The Department of Industrial Relations summarises PAGA at dir.ca.gov: PAGA. The California Labor and Workforce Development Agency PAGA portal is at labor.ca.gov: PAGA.
PAGA functions as a representative action without the class certification process of Federal Rule of Civil Procedure 23. A single aggrieved employee can pursue penalties on behalf of all aggrieved employees for the same Labor Code violations. PAGA claims for misclassification typically pair with claims for unpaid wages, missed meal and rest periods, inaccurate wage statements, and waiting time penalties, each of which carries its own per-pay-period penalty.
PAGA reform: AB 2288 and SB 92
On July 1, 2024, Governor Newsom signed AB 2288 and SB 92, which together reformed PAGA. The DIR overview at dir.ca.gov: PAGA summarises the changes.
The principal changes include:
- An increase in the employee share of recovered penalties, with employees now receiving 35% of collected penalties rather than the prior 25%, with the balance going to the LWDA.
- New early evaluation and cure procedures for some types of violations, designed to encourage resolution before the case progresses.
- Stricter standing requirements for representative plaintiffs.
- Adjustments to the manner in which courts assess penalties.
The reforms reduce some types of PAGA exposure for employers who can demonstrate good-faith compliance efforts and use the cure procedures. They do not eliminate PAGA as an enforcement mechanism. Misclassification claims under PAGA continue to be filed and continue to result in seven- and eight-figure settlements.
Federal FLSA collective actions
The federal counterpart to a state class action is the FLSA collective action under 29 USC 216(b), available at law.cornell.edu: 29 USC 216. A collective action differs from a Rule 23 class action in that workers must opt in to join rather than being included automatically. The plaintiff sends notice to potential opt-in plaintiffs, who file consent forms to participate.
The underlying classification standard in an FLSA collective action is the economic reality test at 29 CFR Part 795, the subject of a separate article in this series. The remedies available include unpaid minimum wage and overtime under 29 USC 206 and 207, liquidated damages under 29 USC 216(b), and attorneys’ fees and costs.
Federal collective actions are most often brought in industries with concentrated 1099 workforces and standardised pay practices. Delivery, ride-share, last-mile logistics, sales, recruiting, and creative services have all been the subject of significant FLSA collective actions in the past five years.
Other states with ABC-style statutes
California is not the only state with an ABC-style statute. Several other states apply the ABC test for some or all classification questions.
- Massachusetts applies a strict ABC test under Massachusetts General Laws Chapter 149, Section 148B, for purposes of the state wage laws.
- New Jersey applies the ABC test under the New Jersey Unemployment Compensation Law, codified at N.J.S.A. 43:21-19(i)(6), and similar tests for state wage law claims.
- Illinois applies an ABC test under the Illinois Employee Classification Act for workers in the construction industry.
Each state’s ABC test has its own statutory language and case law interpreting it. The general pattern is similar to the California test: a presumption of employee status with a high burden on the hiring entity. Plaintiff-side counsel often files parallel state-law claims under these statutes alongside federal FLSA claims.
What this means for a US company
The class action surface is broad and deep. A US company can be defending a Rule 23 class action under California law, a PAGA representative action under the same set of facts, an FLSA collective action in federal court, and a state-agency administrative proceeding all at the same time, all stemming from the same set of misclassified workers.
The defensive work is the same in every case: an accurate classification analysis at the time of engagement, documentation that supports the analysis, consistent treatment of similarly situated workers, and prompt correction when the facts change.
Three patterns drive class action filings.
The first is rolling renewal of project-based contracts with no scope change. A class action complaint that can show contractors performing the same work for years on rolling renewals tells a clean story that the relationship was always employment.
The second is uniform treatment of contractors and employees in operations. When contractors attend the same training, follow the same procedures, use the same systems, and report to the same managers as employees, the plaintiffs’ bar can argue that the only difference between the two groups is the label on the contract.
The third is concentrated 1099 issuance with stable annual amounts. When the same group of contractors receives the same approximate amounts year after year on a regular cadence, the case for a stable employment-like economic relationship is straightforward.
The single most useful defensive practice is to manage every contractor engagement as a discrete piece of work, with a defined scope, a defined term, a defined deliverable, and a renewal decision that includes a fresh classification review. Omnivoo’s contract management product is built around this workflow. Contracts, scope-of-work documents, invoices, and renewal records live in one place so the relationship can be reviewed against the ABC test, the economic reality test, and the IRS common-law test at each renewal. The work that prevents a class action is largely the same as the work that prevents an IRS audit. The earlier it gets done, the lower the exposure when an inquiry arrives.
Sources
- Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal.5th 903 (summary with primary citations): en.wikipedia.org: Dynamex Operations West v. Superior Court
- Vazquez v. Jan-Pro Franchising International, Inc. (9th Cir. 2021), No. 17-16096: law.justia.com: Vazquez v. Jan-Pro 9th Cir.
- California Labor Code Section 2775: leginfo.legislature.ca.gov: LAB 2775
- California DIR, Independent contractor versus employee: dir.ca.gov: Independent contractor
- Castellanos v. State of California, Case No. S279622: supreme.courts.ca.gov: S279622
- California DIR, Private Attorneys General Act: dir.ca.gov: PAGA
- California LWDA, PAGA portal: labor.ca.gov: PAGA
- 29 USC 216(b), FLSA damages and collective action: law.cornell.edu: 29 USC 216
- 29 CFR Part 795, Employee or Independent Contractor Classification under FLSA: ecfr.gov: 29 CFR Part 795