Applying California’s ABC Test to Determine Employee Status

The assessment of whether a worker is an independent contractor or an employee is a fact-intensive inquiry. Moreover, different tests apply depending on the law. Thus, while a worker may be classified as an independent contractor under federal tax law, the same worker may be classified as an employee under the Fair Labor Standards Act, the federal law covering minimum wage and overtime.

The three general categories of tests are: (1) the Right to Control test; (2) the Economic Realities Test; and (3) the ABC test. There are also state-specific variations of the aforementioned tests.  Just last year, California’s Governor signed into law Assembly Bill  5, which requires application of the “ABC test” when determining if California workers are employees or independent contractors for purposes of the Labor Code, the Unemployment Insurance Code, and the Industrial Welfare Commission wage orders. The ABC test presumes that a worker is an employee unless the hiring entity can satisfy three conditions. The burden is on the employer to prove that the worker meets all of the defined criteria.

Why Does it Matter if You are Classified as an Employee v. an Independent Contractor?

Employees are legally entitled to certain benefits and protections that are not afforded to independent contractors. For example, a worker classified as an employee in California would be protected under California’s workplace safety and retaliation laws, as well as wage and hour laws that require employers to pay their workers at least the minimum wage, overtime, and provide meal and rest breaks.

What are the Three Conditions of the ABC Test?

Under the California ABC test, a worker is an employee unless the hiring entity satisfies the following three conditions:

• The worker is free from the control and direction of the hiring entity involving the performance of the work;
• The worker performs work that differs from the hiring entity’s usual course of business; and
• The worker is normally involved in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

Three-Prong Breakdown

In order to understand the ABC test, it may help to breakdown each of these three conditions as follows:

Control and Direction of Work

The first prong lays out the arrangement as it relates to control and direction. A worker who is subject to the same type of control a business typically exercises over its employees will likely be considered an employee. On the other hand, if the worker is free to do the work as he or she sees fit with no training or oversight from the employer, the worker will likely be considered an independent contractor.

Work Outside of the Employer’s Business

The second prong relates to the essential business functions of the employer. If the worker provides services comparable to that of an existing employee, that worker will likely be viewed as working in the hiring entity’s “usual course of business,” and thus be classified as an employee.

Independently Established Work

The third prong looks to see whether the worker performs similar duties for other entities or under other circumstances. If a person works exclusively for one entity, it is more likely that the worker is an employee of that entity.

California Employment Misclassification Lawyers at Miller Shah LLP Advocate for Misclassified Workers.

If you believe you have been misclassified, contact the California misclassification lawyers at Miller Shah LLP today.  We will review your case and fight for what you rightfully deserve. For an initial consultation, call us at 866-540-5505 or contact us online.

Miller Shah LLP is a law firm with offices in California, Connecticut, Florida, New Jersey, New York, and Pennsylvania. Miller Shah is an active member of the International Advisory Group (www.iaginternational.org), which provides the firm with the ability to provide our clients with access to excellent legal and accounting resources throughout the globe. For more information about our firm, please visit us at www.millershah.com.