California's ABC Test: Guide to Worker Classification

Under the ABC test, a worker is considered an employee and not an independent contractor, unless the hiring entity satisfies all three of the following conditions:

A. The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and, in fact;

B. The worker performs work that is outside the usual course of the hiring entity’s business; and

C. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

Classifying workers as independent contractors under the ABC Test can only occur if all three factors are met, or unless one of the exemptions established by AB 5 is satisfied.

Below is a summary of how the California Supreme Court issued the ABC test.

Independent Contractor Status ABC Test

The California Legislature first adopted the ABC test in Dynamex Operations West, Inc. v. Superior Court (2018). In September 2019, the Governor signed AB 5 to adopt the “ABC test” to determine if workers in California are employees or independent contractors under the Labor Code, the Unemployment Insurance Code, and the Industrial Welfare Commission (IWC) wage orders. Among other things, AB 5, later amended by AB 2257, added a new article to the Labor Code addressing these issues (sections 2775-2787).

Prong A

A worker who is subject, either as a matter of contractual right or in actual practice, to the type and degree of control a business typically exercises over employees would be considered an employee.

Depending on the same nature of the work performed and overall arrangement between the parties, a business need not control the precise manner or details of the work in order to be found to have maintained the necessary control that an employer ordinarily possesses over its employees.

For example, a construction company proved that a worker who specialized in historic reconstruction was sufficiently free of the company’s control where the worker set his own schedule, worked without supervision, the worker supplies and purchased all materials using his own business credit card, and had declined an offer of employment proffered by the company.

Prong B

Contracted workers who provide services in a role comparable to that of existing employees will likely not be viewed as working outside the usual course of the hiring entity’s business. Workers who provide services that are within the hiring entity’s usual course of business are employees.

For example, Prong B is satisfied when a retail store hires an outside plumber to repair a leak in a bathroom on its premises, or when a retail store hires an outside electrician to install a new electrical line.

However, Prong B is not satisfied when a clothing manufacturing company hires work-at-home seamstresses to make dresses from cloth and patterns supplied by the company that will thereafter be sold by the company, or when a bakery hires cake decorators to work on a regular basis on its custom-designed cakes.

Prong C

The employer's business must prove the independent business operation is actually in existence at the time the work is performed. The fact that the business operation could come into existence in the future is not sufficient.

An individual who has made the decision to go into business generally takes the usual steps to enter that independently established trade occupation and promote that business.

Examples of this include:

• Incorporation, licensure, advertisements,
• Routine offerings to provide the services of the independent business to the public or to a number of potential customers, and the like.

Prong C is not necessarily satisfied if an individual’s work relies on a single employer. For example, Prong C was not satisfied where a taxi driver was required to hold a municipal permit that may only be used while that driver is employed by a specific taxi company (Garcia v. Border Transportation Group (2018).

Applicable Law

The Dynamex ABC test only applies to wage-order claims, and the Borello test applies to all other claims. For example, the ABC test may not apply for certain occupations and contracting relationships such as freelance writers.

The Borello Test

The California Supreme Court established the Borello test in S.G. Borello & Sons, Inc. v. Dept. of Industrial Relations (1989). The test relies upon multiple factors to make that determination, including whether the potential employer has all necessary control over the manner and means of accomplishing the result desired, although such control need not be direct, actually exercised or detailed.

The set of factors that the court will look at under the Borello test are as follows:

(a) whether the one performing services is customarily engaged in an independently occupation or business;

(b) the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision;

(c) the skill required in the particular occupation;

(d) whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work;

(e) the length of time for which the services are to be performed;

(f) the method of payment, whether by the time or by the job;

(g) whether or not the work is a part of the regular business of the principal; and

(h) whether or not the parties believe they are creating the relationship of employer-employee.

Differences Between Federal and State Laws on Legal Tests

Finally, the Borello test has five additional factors borrowed from the Fair Labor Standards Act (FLSA) in making a determination of a worker’s classification:

(i) the alleged employee’s opportunity for profit or loss depending on his managerial skill;

(j) the alleged employee’s investment in equipment or materials required for his task, or his employment of helpers;

(k) whether the service rendered requires a special skill;

(l) the degree of permanence of the working relationship; and

(m) whether the service rendered is an integral part of the alleged employer’s business.

California Employment Law

California law generally uses the ABC test to distinguish between employees and independent contractors. This legal test looks past any contractual provisions between the company and the worker that define the worker’s status. Instead, the ABC test looks at the following 3 factors:

• the control that the company exerts on the worker,
• whether the work is outside the company’s typical business, and
• whether the worker normally provides this type of work as an independent business.

Under the ABC test, workers are presumed to be employees. It is up to the hiring entity or purported employer to prove these 3 factors. Workers are an independent contractor only if the company can prove all 3 prongs, not employees.

Worker Classification

Employee status is determined by the National Labor Relations Act (NLRA), the Labor Code, the Fair Labor Standards Act, and the ABC Test. The NLRA is a foundational statute of United States labor law that guarantees the right of private sector employees to organize into trade unions, collective bargaining rights, and take collective action such as strikes.

Employment Status

Employees are protected by numerous provisions of California’s labor laws and wage orders. Independent contractors are not. Some of the most important differences between these two worker classifications are:

Employees are entitled to the applicable minimum wage, overtime pay, meal and rest breaks if they are non-exempt, but independent contractors are not. Furthermore, employees have taxes withheld from their earnings, but independent pay their own employment taxes.

Employees have their employers pay half of their Social Security and Medicare tax, are entitled to employee benefit programs, including healthcare insurance and retirement benefits, are covered by workers’ compensation, generally use equipment provided by their employer, can hold their employer vicariously liable for accidents caused by the employee’s negligence while on the job can recover compensation for any business expenses they incur, can receive unemployment insurance benefits. An independent contractor does not enjoy these legal and financial benefits.

Experienced Employment Law Attorneys

If you think your employment status is misclassified, call the attorneys at Freeburg & Granieri, APC today for a free consultation.

With years of experience in employment law, we offer comprehensive counsel to ensure compliance and protect your interests. Don't navigate the complexities alone—schedule a free consultation today, and let us advocate for you.