Employee vs. Independent Contractor: Understanding California’s ABC Test

Understanding if a worker is an employee or independent contractor (IC) is vital for both employers and employees. For workers, being classified as an employee or IC determines eligibility for various benefits, including minimum wage, overtime pay, and workers’ compensation. In California, ICs are generally not entitled to most of the benefits employees are entitled to. The ABC Test, established under California’s law, helps clarify how to know if a worker is an employee or an IC.

What Is California’s ABC Test?

The ABC Test is a legal standard used in California to differentiate whether a worker should be classified as an employee or independent contractor. This law is codified under Assembly Bill (AB) 5, which Governor Newsom signed into law in September 2019. Under AB 5, the ABC Test must be applied to determine whether a worker in California is an employee or independent contractor for legal purposes.

Under the ABC Test, a California worker is presumed to be an employee unless;

1. A: The worker operates independently, and the employer does not control or direct their work; and 
2. B: The worker’s duties are outside the usual course of the employer’s business; and
3. C: The worker regularly engages in an independently established business, trade, or occupation similar to the type of work being performed.

How to Apply the ABC Test

Here is how to apply the ABC Test in California;

1. Part A: Control and Direction

Under the first part, the question that needs to be answered is whether the worker is free from the control and direction of the employer in performing their work. An IC has the freedom to decide how, when, and where to carry out their work duties. Independent contractors are not directly supervised. They control their schedules, methods, and processes. If an employer exerts significant control over a worker’s activity, the worker is classified as an employee.

It is crucial to note that depending on the nature of work and arrangement, an employer does not need to control the precise manner or details of the work for the worker to be considered an employee.

2. Part B: Performing Work Outside the Usual Course of Business

Under the second part of the ABC Test, an employer must prove that the worker performs work that is outside its usual course of business for the worker to be considered an IC. For instance, if a hotel hires a plumber to repair a broken sink, the plumber would likely be considered an independent contractor. However, if a marketing agency hires a freelance graphic designer to create a logo for a client, the worker would be regarded as an employee since logo design is an integral part of the agency’s usual course of business.

3. Part C: Independent Trade or Business

The final part of the test examines if a worker is engaged in an independently established trade, business, or occupation. ICs operate their own businesses, offering services to different clients, and have the ability to work independently of the hiring entity.

It’s crucial to note that the business must exist when the work is done. A business that is to be set up in the future cannot qualify as an independent trade for purposes of the ABC Test.

Contact a California Employment Lawyer

Contact a California employment lawyer if you have questions or need help with an employment law-related matter.