Five months ago, we reported about a class action lawsuit against an artificial intelligence (AI) company that engages workers to perform data labeling and content creation and classifies them as independent contractors (ICs) instead of employees. We remarked then that it was only a matter of time before the AI industry became the subject of independent contractor misclassification litigation. Last month, among the four court cases we summarize below, is yet another class action lawsuit alleging IC misclassification filed against an AI company that engages data annotators to perform AI work. As we noted in that earlier blog post, nothing in particular about the AI industry should dissuade AI businesses from structuring, documenting, and implementing their IC relationships in a manner that complies with federal and almost all state laws governing ICs. Like companies in many other industries, companies in the AI industry can utilize a process such as IC Diagnostics (TM) to maximize IC compliance in a customized and sustainable manner consistent with their business models. Companies working on large language models would be wise to implement these types of steps to minimize the chances they will be sued for IC misclassification.

In the Courts

ARTIFICIAL INTELLIGENCE COMPANY SUED BY DATA ANNOTATORS IN CLASS ACTION LAWSUIT FOR IC MISCLASSIFICATION. A data annotator has filed a proposed class action lawsuit in California state court against an AI training company for violations of the state’s wage and hour laws as a result of the company’s alleged misclassification of the data annotators as independent contractors. According to the complaint, the company, Surge Labs. Inc. d/b/a DataAnnotation, engages data annotators to work on projects for customers using AI and to perform coding assignments, distillation tasks, comparisons of AI generated responses, and data labeling to ensure that large language models become more accurate and capable of mimicking human expression. The company’s platform provides the annotators with “a queue of tasks, which are assigned to them via an automated algorithm.” The plaintiff claims that the company requires the data annotators to undergo training for which they are not paid, determines which projects are offered to them as well as fees the annotators receive for a project, sets time limits for tasks, and provides the instrumentalities that it requires the annotators to use for their work. Cavalier v. Surge Labs Inc., No. (Cal. Super. Ct. San Francisco County May 20, 2025).

LANGUAGE SERVICES COMPANY FACES PROPOSED CLASS ACTION MISCLASSIFICATION LAWSUIT BY TRANSLATORS AND LINGUISTS. A translator has initiated a lawsuit against a nationwide translation company seeking to represent a class of over 500 workers performing translation, court reporting, and voice acting services. The lawsuit invokes the California Private Attorneys General Act (PAGA) alleging that TransPerfect Translations violated the wage and hour provisions of the California Labor Code and a California wage order due to its misclassification of the workers as ICs and not employees. The plaintiff claims she worked in excess of 70 hours in a workweek and did not receive overtime compensation. She also asserts that the company failed to furnish adequate wage statements, pay her at least the minimum wage, provide all her wages due upon termination, pay for meal and rest periods, and failed to reimburse her for business expenses. The class action complaint contends that the company contractually exercised control and direction over the class members, that the class members perform work in the usual course of the company’s business, and that the translators are not customarily engaged in an independently established trade, occupation, or business of the same nature as the work they perform. The plaintiff also claims that even if the company is entitled to an exemption from the strict ABC test for IC status under California law, the company cannot meet the less stringent test for IC status under the Borello case. Iravanian v. TransPerfect Translations International Inc., No. 25-cv-03920 (N.D. Cal. May 5, 2025).

NEW JERSEY GOLF CLUBS SUED BY CADDY IN IC MISCLASSIFICATION CLASS ACTION. A golf caddy has filed two class action complaints in New Jersey state court against two country clubs alleging minimum wage and overtime violations under the New Jersey Wage and Hour Law due to the caddies’ classification as independent contractors instead of employees. In both cases, the caddy, representing himself and seeking to represent other similarly situated caddies, alleged that dozens of caddies at each country club do not receive any compensation from the clubs, only bag fees and tips the golfers pay them directly. The plaintiff also claims that the caddies are subject to control by the clubs’ caddy masters, who allegedly assign them to golfers, interview, hire and fire them, supervise and discipline them, and set their hours. The caddy further claims that he is required to wear a uniform and work 50 hours per week without receiving at least the minimum wage or any overtime compensation. Woolridge v. Glen Ridge Country Club, No. ESX-L-003841-25 (N.J. Super. Ct. Essex County May 19, 2025, and Woolridge v. Mountain Ridge Country Club, No. ESX-L-003874-25 (N.J. Super. Ct. Essex County May 20, 2025).

APPEALS COURT REJECTS TRUCK DRIVERS’ CONSTITUTIONAL CHALLENGE TO CALIFORNIA’S STRICT TEST FOR IC STATUS. The U.S. Court of Appeals for the Ninth Circuit has rejected constitutional arguments by an association of independent drivers, affirming a federal district court’s decision upholding California’s Assembly Bill No. 5 (AB-5) and its business-to-business (B2B) exemption. As discussed in detail in a number of our previous blog posts, including our post of September 11, 2019 informing companies how to operate with ICs after AB-5 became effective, we noted that AB-5 codified the California Supreme Court’s Dynamex decision issued in April 2018, creating an “ABC” test requiring companies to satisfy each of three strict criteria to establish IC status. Before Dynamex, IC status was determined in that state by applying a multi-part test issued three decades earlier by the California Supreme Court in the Borello case, which weighed and balanced a number of factors. Dynamex instantly exposed tens of thousands of businesses in scores of industries, including trucking, that had operated for years in compliance with settled law, to IC misclassification liability. Exceptions were added for certain industries, including the B2B exception.

Although the Owner-Operator Independent Drivers Association claimed that AB-5 violates the so-called dormant Commerce Clause, the Ninth Circuit concluded that the association failed to present evidence that AB5 burdens interstate commerce. It also concluded that although the association contended that the B2B exemption discriminates against out-of-state drivers, the association failed to explain adequately, or demonstrate the veracity of, that assertion, particularly because the applicable regulations apply to all drivers engaged in interstate commerce, including those based in California. Finally, the court rejected the association’s argument that the B2B exemption violated the Equal Protection Clause due to its favoring intrastate drivers over their interstate counterparts. Rather, the Ninth Circuit concluded that while the B2B exemption may treat businesses differently than individual workers, it does not draw a distinction between inter- and intra-state drivers. Owner-Operator Indep. Drivers Ass’n Inc. v. Bonta, No. 24-2341 (9th Cir. May 16, 2025).

Other Noteworthy News

NEW JERSEY PROPOSED REGULATIONS

In our blog post of April 30, 2025 titled, “Garden State May Soon Becomes Even Less Hospitable to Independent Contractors Than the Golden State,” we discussed how the New Jersey Department of Labor and Industry was about to file a notice of a proposed regulation addressing the test for IC status under New Jersey law. As noted in that blog post, the New Jersey Supreme Court in 2015 ruled that the three-prong test for IC status under the New Jersey Unemployment Compensation Law also governed IC status under the state’s wage laws. As we reported in our blog post at the time, this three-pronged test, commonly referred to as the ABC test, set a low bar for workers to satisfy in an IC misclassification case in New Jersey. The proposed regulation, if issued in its proposed form, would lower the bar even further. It would also likely prompt blowback from freelancers and other ICs as well as from industry trade organizations, as occurred when California enacted its AB5 legislation in 2020. Addressing the proposed regulation, the publisher of this blog was quoted in an article published May 6, 2025 in FreightWaves: “The new regulation would likely prompt companies utilizing ICs in New Jersey to either cease operating their businesses in the Garden State or double down in their efforts to enhance their IC compliance.” The publisher of this blog was quoted further: “The proposed widening of the definition of ‘place of business’ almost entirely eviscerates any chance for most ICs and companies using their services from establishing the workers’ IC status.” He also stated that the widening of the place-of-business definition appears to conflict with one of the legal precedents cited by the department as authority for the regulations, and this will likely provoke one or more court challenges to the proposed regulation, if issued without a change to its definition of a “place of business.”