“Our 1099 Paperwork Is Airtight”: A $4.4 Million Lesson in California

“Our 1099 paperwork is airtight” is the belief that produced an alleged $4,423,450 assessment against Hart Placement Agency.

In April 2026, the California Labor Commissioner’s Office assessed Hart Placement, a Los Angeles home-care agency, and its principals $4,423,450 for the alleged misclassification of 144 caregivers as independent contractors. The agency has appealed; a hearing date is pending. If the assessment is upheld, the average per-caregiver recovery is over $30,000.

The factual pattern is worth reading because it is recognizable to almost every small employer using 1099s. The LCO’s findings, per the agency’s news release, included requiring the caregivers to obtain business licenses, requiring them to file fictitious-business-name statements, signing them to IC agreements without giving them copies, falsifying timesheets or asking workers to sign documents that concealed shifts exceeding 12 or 24 hours, and denying paid sick leave.

None of those steps look like “control” in the moment. They look like compliance — the worker has a business license, the worker is on a 1099 agreement, the worker signed something at onboarding. The LCO read each of them as the opposite of what they appeared to be: license-shifting (push the regulatory burden onto the worker), contract-shielding (no copy means the worker cannot argue from the document), and timesheet management (hide the hours that would prove employee status).

California uses the ABC test under Labor Code §2775. The presumption is that every worker is an employee unless the hiring entity proves all three prongs. The “B” prong — work performed outside the usual course of the hiring entity’s business — is the one most agencies cannot meet, and the one most owners do not analyze before they classify.

The proof pressure in an LCO investigation is the documents the worker does not have. The signed-without-a-copy agreement the worker cannot produce becomes evidence of how the relationship was actually managed. The timesheets that line up suspiciously with 8-hour caps become evidence of overtime concealment. The business-license requirement becomes evidence of the employer’s control over the worker’s claimed independent business.

A small employer’s classification position is not protected by the paperwork. It is protected by the underlying facts, which the paperwork either reflects accurately or misrepresents in ways the LCO knows how to read.

If contractor structures at your company have not been audited in the last two years — under the ABC test, with the actual operational facts written down — an audit may be overdue.

This post shares general information based on common patterns I see in California workplaces. It is not legal advice, does not create an attorney-client relationship, and outcomes depend on specific facts — no lawyer can guarantee a result. Past results do not guarantee or predict future outcomes. AI may have been used to create this post. All content reviewed by a CA attorney before publication.  This post may be attorney advertising.