Legal Question in Business Law in California

Your first step in defending yourself is to prove to the satisfaction of the labor folks that this was indeed a partnership and these two were partners. The formation and existence of a partnership can be shown without the need for a written agreement; according to statute, "the association of two or more persons to carry on as coowners a business for profit forms a partnership, whether or not the persons intend to form a partnership." See Corporations Code section 16202(a).

If you can show your business met this relatively simple test, it was a partnership. (However, note that if it were a corporation or LLC, it would NOT meet the test).

Next, note that Corporations Code section 16401(h) states "A partner is not entitled to remuneration for services performed for the partnership, except for reasonable compensation for services rendered in winding up the business of the partnership."

So, generally speaking, absent a contract to the contrary, a partner has no right to claim or receive wages or salary while working for the partnership.

This line of defense is the most obvious. You may have others. Also, the defense might not fit the facts; you haven't given much to go on. At a $50K risk level, I think you should retain an attorney with experience at labor commission hearings to represent you, and have him or her look up the cited Corporations Code sections to confirm that they fit your facts.

You defend this with whatever evidence, testimony, documents you may have. You may have to fight at the Labor Commissioner, and they could sue you in Superior Court. But, they have the burden of proof of their claims of being employees, and you probably have more evidence available than you think. Feel free to contact me if serious about getting legal help, to discuss what you may have to help your case. It may be possible for your attorney to convince them their lies won't win a case.