In 2019, Governor Newsom signed AB 5 into law in September of 2019. It added § 2750.3 to the California Labor Code which adopted and broadened the common law "ABC Test." This test determines how to classify an "employee" under the California Labor Code the California Unemployment Insurance Code, and for purposes related to Industrial Welfare Commission wage orders.
The law became effective on January 1, 2020. However, different timeframes apply depending on the circumstances. Here are answers to some frequently asked questions about independent contractors under California law.
Why is the Classification of Workers Important?
An independent contractor has different legal rights and obligations than an employee. The distinction may have extensive consequences for workers and business enterprises. Employees are entitled to minimum wage, overtime pay, business expense reimbursements, and other vital benefits. Employers that misclassify workers as independent contractors avoid paying wages and overtime premiums, as well as providing meal and rest breaks. Independent contractors are not entitled to these benefits although exercise more, at least in theory, more control over their work activities.
What is the ABC Test?
The ABC Test as revised by AB 5 states that a worker is presumed to be an employee unless the entity that hired the worker can show that:
(A) The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
(B) The person performs work that is outside the usual course of the hiring entity's business.
(C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
An employer cannot classify a worker as an independent contractor under the ABC Test unless all three factors are met, or unless the employer can apply one of the exemptions established by AB 5.
Does the ABC Test Apply in Every Situation?
No. There are situations where the ABC test will not apply. While the ABC test is the applicable test for most workers, for some occupations and industries Labor Code §§ 2775 et seq. apply the Borello multi-factor test
These are situations where the Legislature or the Industrial Welfare Commission has specifically defined the existence of an employment relationship. In these cases, the specific language contained in the IWC wage orders, the Labor Code, or Unemployment Insurance Code will remain in effect and the ABC test will not otherwise apply to establish employee status or employer liability.
Also, where a court determines the ABC test cannot apply for a reason other than an express exception, the Borello test will apply. For example, if a court determines that the ABC test is preempted by applicable federal law, it would, instead, apply the Borello test.
What is the Borello Test?
The California Supreme Court established this test in S.G. Borello & Sons, Inc. v. Dept. of Industrial Relations (1989) 48 Cal.3d 341. The Borello test uses multiple factors to determine a worker’s classification, including whether the prospective employer has all necessary control over the manner and means of accomplishing the desired result. However, such control does not need to be direct, exercised, or detailed. This factor is not dispositive and must be considered along with other factors.
How Are the ABC Test and Borello Test Similar?
Both the Borello test and the ABC test assume that the worker is an employee, and the hiring entity must prove that the worker is an independent contractor. However, the ABC test is designed to be more predictable and make it easier to determine whether a worker is an independent contractor or an employee.
If you believe that your employer is violating your rights, call Moss Bollinger for a free consultation to discuss solutions for asserting and defending these important, valuable rights. Moss Bollinger takes great pride in holding employers accountable for workplace violations that infringe upon the protections afforded every California worker by the State of California.
Contact Moss Bollinger today at 866-942-7974 or reach us online.