Severance for Contract Workers in Los Angeles: Do You Have Any Rights?

If you've been working on a "contract" basis and your engagement just ended, you might think severance doesn't apply to you. After all, you were a contractor, not an employee. Right? Maybe. But in California, the line between contractor and employee is one of the most important and most frequently crossed legal boundaries. And if you were misclassified, you may have far more rights than you've been told.

The Misclassification Question

California uses the ABC test (codified by AB 5) to determine whether a worker is an employee or an independent contractor. Under this test, you're presumed to be an employee unless the company can prove all three factors:

A: Free from control. You're free from the company's control and direction in performing your work, both under the contract and in fact.

B: Outside the usual course of business. The work you perform is outside the usual course of the hiring company's business.

C: Independently established trade. You're customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

All three prongs must be met. If any one fails, you're an employee under California law, regardless of what your contract says.

Many Los Angeles workers classified as "independent contractors" or "1099 workers" are actually employees. This is especially common in tech, entertainment, healthcare, and professional services. If you were working full-time at the company's office, using the company's equipment, following the company's schedule, and performing work that's core to the company's business, you were likely an employee.

Why Misclassification Matters for Severance

If you were misclassified as a contractor, your employer owes you a lot more than severance:

Unpaid overtime. As an employee, you were entitled to overtime pay for hours over 8 in a day or 40 in a week (unless properly classified as exempt). If you worked contractor-style "whatever hours it takes" and weren't paid overtime, those wages are owed.

Meal and rest breaks. Employees get a 30-minute meal break after 5 hours and a 10-minute rest break every 4 hours. Missed breaks carry a penalty of one hour of pay each.

Business expense reimbursement. Under Labor Code Section 2802, employees are entitled to reimbursement for necessary business expenses. If you were using your own equipment, software, vehicle, or phone for work, those expenses should have been reimbursed.

Unemployment benefits. As an employee, you would be eligible for unemployment. As a contractor, you're generally not. Misclassification cost you this safety net.

Workers' compensation. Employees are covered by workers' comp. Contractors are not. If you were injured on the job, misclassification may have denied you benefits.

These accumulated claims can be worth tens of thousands of dollars. They exist independently of any severance and give you significant leverage.

What If You Were Properly Classified?

If you were genuinely an independent contractor, the legal landscape is different. True contractors don't have the same severance or employment law protections. Your rights are primarily governed by your contract:

What does the contract say about termination? Is there a notice period? Are there early termination fees? What happens to payment for work completed but not yet billed?

Even as a true contractor, if the company wants you to sign a release of claims before paying you for completed work, that release should be reviewed carefully. You might be giving up more than you realize.

The Severance Agreement as Evidence

Here's an interesting wrinkle: if you were classified as a contractor but the company is offering you a "severance" agreement with a release of claims, that's unusual. Contractors typically don't get severance. The fact that the company is offering it suggests they may know the classification was wrong. The severance offer itself can be evidence that the company treated you as an employee.

What to Do

Don't sign the agreement yet. Whether you're a misclassified employee with substantial wage claims or a true contractor with contract rights, you need to understand your situation before signing a release.

Evaluate the ABC test. Honestly assess your working arrangement against the three prongs. If any prong fails, you may be an employee.

Calculate your exposure. If you were misclassified, add up the overtime, missed breaks, unreimbursed expenses, and other violations. The total is your leverage.

Get a legal assessment. A Los Angeles employment attorney can quickly evaluate whether you were misclassified and what claims you have. Free consultation for workers throughout Los Angeles and Southern California.