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 vs an independent contractor. Employees have a right to legal protections under state and federal employment law, such as overtime pay, the minimum wage, and other employee benefits. Independent contractors are not.

Companies are known to “misclassify” employees as independent contractors in order 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 use a different test.

How does the ABC test work in California?

California law generally uses the ABC test to distinguish between employees and independent contractors. This 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. the control that the company exerts on the worker,
2. whether the work is outside the company’s typical business, and
3. whether the worker normally provides this type of work as an independent business.²

Under the ABC test, courts presume workers to be employees. It is up to the hiring entity or purported employer to prove these 3 factors. You are an independent contractor only if the company can prove all 3 prongs. If they cannot, you are an employee.³

Each of these factors is worth examining closely.

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 cases, the old Borello test is still used.

A. Freedom from employer’s control during performance of work

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. Work is outside the employer’s usual course of business

Workers who provide services within the hiring entity’s usual course of business are employees. These workers would ordinarily be viewed by others 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 such services as independent contractors and waive their legal protections, true employees would find themselves quickly displaced from the job site. This would also pressure competing companies to do the same, reducing wages, job security, and workplace safety.¹²

C. You are customarily engaged in work of the same nature as what is provided

Hiring entities have to show that alleged employees independently made the decision 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” is generally used to describe workers who have made the decision 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

When is the ABC test not used?

Numerous types of occupations are exempted from the ABC test. Workers who are exempted from the ABC test are subject to the Borello test to determine their proper employee status.

After Assembly Bill 2257, 109 types of workers are exempted from the application of the ABC test. 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

Even these types of workers may be subject to the ABC test in certain circumstances. Additionally, the ABC test does not apply to working relationships between:

• most bonafide 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

When the ABC test does not apply, the Borello test usually takes its place.

The Borello test

The Borello test is what California previously used to distinguish employees from independent contractors. It is a “totality of the circumstances” approach devised by the California Supreme Court in 1989. It looks at all relevant factors to determine a worker’s status. Those factors focus on how closely the purported employer controls the worker.³⁶

Has this area of the law changed recently?

Yes, the test to distinguish employees from independent contractors has changed rapidly under California state law. In 1989, the California Supreme Court, in S.G. Borello & Sons, Inc. v. Department of Industrial Relations, created the Borello test to resolve these misclassification disputes.³⁷

However, the multifactor Borello test was difficult to use because it considered all of the factors at play. Without more guidance, employers and workers struggled to figure out what their employment status would be.³⁸

In 2018, the California Supreme Court revisited the issue in Dynamex Operations West, Inc. v. Superior Court. In that court decision, the Court adopted the ABC test. This test has been adopted by several other states to resolve independent misclassification issues. The Court’s version of the ABC test most closely tracked the one in use in Massachusetts.³⁹

The California Legislature passed Assembly Bill 5 in 2019 in response to the confusion. This law codified the Dynamex decision for misclassification lawsuits. However, it also carved out numerous occupations that continue to be handled by the Borello test.

Problems with the new statute became apparent, and the Legislature passed a new law in 2020, Assembly Bill 2257. This new bill exempted even more occupations from the ABC test. It also applies retroactively if it would relieve an employer of liability under California’s labor laws.⁴⁰

Predictably, ridesharing and delivery companies like Uber and Postmates are strongly against Dynamex and AB 5 because their whole business model is based on drivers being independent contractors. These companies are fighting back in Olson v. California No. 21-55757 (9th Cir. 2023), which the Ninth Circuit just heard oral arguments for.⁴¹

What is the difference between an employee and an independent contractor?

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 2 worker classifications are:

Employees…	Independent Contractors…
Are entitled to the applicable minimum wage	Are not
Are entitled to overtime pay if they are non-exempt	Are not
Are entitled to meal and rest breaks if they are non-exempt	Are not
Have taxes withheld from their earnings	Pay their own taxes
Have their employers pay half of their Social Security and Medicare tax	Pay 100 percent of the Social Security and Medicare taxes owed to the IRS
Are entitled to employee benefit programs, including healthcare insurance and retirement benefits	Must provide their own retirement and health insurance
Are covered by workers’ compensation	Have to provide their own workers’ compensation
Generally use equipment provided by their employer	Provide their own equipment
Can hold their employer vicariously liable for accidents caused by the employee’s negligence while on the job	Is liable for accidents they cause
Can recover compensation for any business expenses they incur	Cover the costs of their own business expenses
Can receive unemployment insurance benefits	Cannot receive unemployment
Are paid with a W-2 form	Receive 1099 forms for work performed

What can I do if I have been misclassified?

If you have been misclassified with an independent contractor status 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
• attorneys’ fees.

You must file California wage and hour laws claims within three years. If the claim is for a breach of contract, you must file it within four years.⁴²

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

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