It is not illegal to be paid by an outsourced payroll company. It is illegal to do it in order to avoid paying ERISA benefits (401(k) and health care, etc.). This is not an issue for the California Labor Commissioner. Rather it is an issue for the U.S. Department of Labor -- or for a private employment rights attorney. If there are many employees in similar circumstances as you, then there actually may be a very large lawsuit involving all of them.
It's a very complicated employment law case, with a lot of twists and turns. There is an article at this link
which discusses the legal issues involved, and you may want to review it to get an idea of how complicated your situation actually is.
Frankly, I think you may want to talk to a local employment rights lawyer to see if the case can be expanded to other outsourced employees. For a competent referral, see this link.
I'd like to say that your case is a "slam dunk," but I suspect that your "employer" has done everything possible to try to avoid providing you regular employee benefits, and that it could be a real uphill battle. You could also contact the U.S. Department of Labor Employee Benefits Security Administration
and request an investigation.
Concerning filing for unemployment, your weekly wages must be cut by at least 20% before you have a good shot at claiming you have been unemployed. If that's your situation, then you can file an unemployment claim
Hope this helps.
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