The “ABC Test” in California – Am I Misclassified?

In California, the ABC test is one of the tests courts use to determine whether a worker or a vendor is actually an employee versus an independent contractor.

Unlike independent contractors, employees have the right to the following legal protections under state and federal employment law:

• overtime pay,
• the minimum wage, andg
• other employee benefits.

Companies are known to “misclassify” employees as independent contractors to avoid these obligations.

Under the ABC test, that law will deem you to be an employee unless:

1. you are free from the employer’s control and direction regarding the performance of the work, both under the contract and in reality,
2. you perform work outside the employer’s usual course of business, and
3. You are customarily engaged in an independently established business that provides work of the same nature as the work being performed.

Not all independent contractor misclassification issues are resolved using the ABC test in California. Some cases require a more open-ended approach that considers the totality of the circumstances.

In this article, our California labor law attorneys will address everything you need to know about the ABC test.

How the ABC Test Works

California law generally uses the ABC test to distinguish between employees and independent contractors.

The ABC test looks past any contractual provisions between the company and the worker that define the worker’s status.¹ Instead, the ABC test looks at the following three factors:

1. Absence of Control: 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 and in fact; and
2. Business of the Worker: The worker performs work that is outside the usual course of the hiring entity’s business; and
3. Customarily Engaged: The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

Under the ABC test, courts presume that workers are employees. It is up to the hiring entity or purported employer to prove these three factors. You are an independent contractor only if the company can prove all three prongs. If they cannot, you are an employee.²

Each of these factors warrants careful examination.

However, the ABC test is not the only way to distinguish employees from independent contractors. Recent changes to the state’s labor code exempt certain occupations and business relationships from the ABC test.

In these exempted cases, courts rely on the older Borello test. It is a “totality of the circumstances” approach that looks at all relevant factors.³

A. Absence of Control

A key factor in the ABC test is the amount of control the purported employer has over the worker. The more control is exerted, the more likely the worker is an employee.⁴

It is not necessary for the hiring entity to control the precise manner or details of the work, though. It is up to the hiring entity to show that it is not exerting enough control to make the worker an employee.⁵

For example: A truck driver was an employee because the hiring entity required him to keep his truck clean, report to the dispatch center for assignments, and get prior approval before taking passengers. The hiring entity could also end the employment relationship if the driver was late, failed to contact dispatch, or violated the trucking company’s written policy.⁶

For example: Knitters and sewers were provided all the patterns and materials to make children’s clothing. Even though the workers were allowed to work at home at their own pace and hours, they were employees because they were given a pattern to follow and were expected to stick to it.⁷

For example: A construction company did not exert sufficient control over a historic restoration specialist who set his own schedule, worked without supervision, used his own business debit card to buy materials, and declined the company’s job offer so he could control his own work.⁸

B. Business of the Worker

Workers who provide services within the hiring entity’s usual course of business are employees. Others would ordinarily view these workers as employees of the company.⁹

For example: A bakery that hires cake decorators to work on its customized cakes on a regular basis would be hiring employees.¹⁰

For example: A bakery that hires a plumber to repair a leak in the store’s bathroom would be hiring an independent contractor.¹¹

If labor laws allowed workers to provide their services as independent contractors and to waive their legal protections, true employees would quickly be displaced from the job site. This would also pressure competing companies to do the same, reducing wages, job security, and workplace safety.¹²

C. Customarily Engaged

Hiring entities have to show that alleged employees independently decided to customarily engage in an independently established trade or occupation of their own to provide the services rendered. It does not suffice for the employer to show that it merely did not prevent the worker from engaging in such a business.¹³

The phrase “independent contractor” generally describes workers who have chosen to go into business for themselves.¹⁴

For example: A construction company hired siding installers, who provided their own tools. However, the installers had no instrumentalities of a business, like a business location or a business phone number, and did not receive income from anyone other than the construction company. The siding installers were employees.¹⁵

For example: A group of auto repair appraisers had home offices and business cards, their own licenses to operate, provided their own equipment, and were soliciting business from other companies. The company that hired them was not necessarily their employer solely because the appraisers had not worked for any other businesses.¹⁶

ABC Test Exemptions

Dozens of types of workers are exempt from the ABC test in most circumstances. Some of the most important of these exemptions are for:

• creative artists and entertainers,¹⁷
• most individuals providing feedback to data aggregators,¹⁸
• insurance underwriters, auditors, and risk managers,¹⁹
• medical professionals like doctors, surgeons, dentists, and veterinarians,²⁰
• certain licensed professionals,²¹
• registered securities broker-dealers,²²
• most direct salespeople,²³
• newspaper distributors and carriers,²⁴
• grant writers,²⁵
• graphic designers,²⁶
• marketers,²⁷
• travel agents,²⁸
• real estate appraisers,²⁹ and
• freelance writers or editors.³⁰

Additionally, the ABC test does not apply to working relationships between:

• most bona fide business-to-business contracting relationships,³¹
• most referral agencies and service providers,³²
• workers providing certain professional services to hiring entities,³³
• two individuals or entities performing work pursuant to a contract that only covers a single engagement,³⁴ and
• certain construction contractors and individuals performing work as subcontractors.³⁵

Workers who are exempted from the ABC test are subject to the older Borello test to determine their proper employee status.³⁶

Changes in the Law

In 1989, the California Supreme Court created the Borello test to resolve misclassification disputes.³⁷ However, the multifactor Borello test was difficult to use because it accounted for all the factors at play. Without more guidance, employers and workers struggled to determine their employment status. ³⁸

In 2018, the California Supreme Court adopted the ABC test, which several other states rely on to solve independent misclassification issues. California’s version of the ABC test is similar to Massachusetts’. ³⁹

The following year, the California Legislature passed Assembly Bill 5 to codify the ABC test. However, it also carved out numerous occupations that continue to be handled by the Borello test. Then in 2020, the Legislature passed Assembly Bill 2257 in 2020, which exempted even more occupations from the ABC test.⁴⁰

Most recently, the California Supreme Court upheld Proposition 22, which creates a specific carve-out from AB 5 for ride-sharing and delivery companies like Uber, Lyft, and Postmates. So under Prop 22, these companies can classify their drivers as independent contractors rather than employees.⁴¹

Employee vs. Independent Contractor

Employees are protected by numerous provisions of California’s labor laws and wage orders. Independent contractors are not. The following table outlines the most important differences between these two.

Remedies for Misclassified Employees

If you have been misclassified as an independent contractor in California, you can file a:

• misclassification lawsuit against your purported employer, or
• claim with the Labor Commissioner at the California Division of Labor Standards Enforcement (DLSE).

These claims can demand:

• compensation for unpaid wages and other benefits that the employer deprived you of,
• interest on that amount, and
• attorney’s fees.

If your employer willfully misclassifies you as an independent contractor, they may be subjected to a civil penalty of between $5,000 and $25,000 per violation.⁴²

The statute of limitations for filing wage and hour claims in California law is three years. If the claim is for a breach of contract, you must file it within four years.⁴³

Additional Resources

For more information, refer to the following:

• Who’s an Independent Contractor? Who’s an Employee? – Scholarly article in The Labor Lawyer.
• Independent Contractor Defined – Summary by the Internal Revenue Service (IRS).
• What is an Independent Contractor – Overview from Business News Daily.
• Misclassification of Employees as Independent Contractors – Discussion by the U.S. Department of Labor, Wage and Hour Division.
• Independent Contractor Status Under the Fair Labor Standards Act – In-depth discussion from the Federal Register.