What You Need to Know About California’s ABC Test for Independent Contractors
AB 5 is a recent California law requiring the application of the ABC test to determine employment status. Here’s everything you need to know about California’s ABC Test for independent contractors.
The California Supreme Court outlined explanations for applying all three parts of the ABC test when deeming workers employees or independent contractors. California recognizes workers as independent contractors if they meet each part of the test.
What is the ABC Test in California?
The ABC test determines the type of classification that a worker in California falls underneath. California classifies workers as independent contractors or “regular” employees. Independent contractors are workers meeting all three requirements of the ABC test.
The ABC test consists of three parts:
1. The worker is free from the control and direction of the hiring entity,
2. The worker performs work outside the usual course of the hiring entity’s business, and
3. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
Each part of the ABC test deals with a different requirement to identify work classification. The first part deals with the worker’s autonomy, the second is the type of business the worker performs, and the third is the worker’s business within their industry.
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Part One of the ABC Test
The first part of the ABC test deals with the worker’s autonomy. California courts measure this autonomy by the amount of control and oversight a worker has over their work. Independent contractors have higher levels of independence than employees. They make their hours, purchase their materials, and work without supervision.
However, legal mechanisms like contracts create a power dynamic limiting autonomy. While independent contractors do have more autonomy in contractual relationships than employees, contracts and deals still confine independent contractors to the wishes of their employers.
Part Two of the ABC Test
The second part of the ABC test deals with the type of work an employee performs and whether the work falls outside the hiring entity’s business scope. Companies that hire contractors who do similar jobs to their employees might not consider independent contractors.
Employees work for one employer at a time, while independent contractors can have multiple “employers” or clients. The clients do not limit the ability of an independent contractor to work for another client.
Part Three of the ABC Test
The third part of the ABC test regards the business’s existence within the industry. California considers workers as independent contractors when they conduct business for a client as a part of their regular business operations. Workers who serve clients but do not have consistent, or even existent, business operations are not independent contractors.
Independent contractors can demonstrate the validity of their business and its operations in numerous ways, including public advertisements, incorporating or licensing their business, and offering services to the public. Contracts between a hiring entity and a worker who labels the worker as an independent contractor are insufficient to satisfy this part of the test.
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Application of the ABC Test
California uses the ABC test to determine worker classification for the Labor Code, the Unemployment Insurance Code, and the Industrial Welfare Commission (IWC) wage orders. A judge will apply the Borello test if a California court cannot use the ABC test, except for an express exception.
When assessing worker classification, the Borello test considers multiple factors, including whether the potential employer has all the necessary control over the manner and means of accomplishing the desired result. The Borello test is a more complex legal test for determining whether workers are employees or independent contractors.
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