What is the ABC Test?
Are Your Workers Classified Properly?
This article examines the ABC test, as used by California to determine employee versus independent contractor status and provides an overview of examples for each prong of the test to assist businesses evaluating their own risk.
The ABC test originated with the California Supreme Court’s decision in Dynamex Operations West, Inc. and was codified into law as AB-5 and made applicable to most provisions of the Labor Code and CUIC. The new law replaced the Borello test for workers that do not meet one of the many codified exemptions.
The test has three prongs. A worker can be classified as an independent contractor only if these three conditions are met:
Condition A: The individual is free from control and direction, both under contract and in fact.
Condition B: The individual performs work that is outside the usual course of the hiring entity’s business.
Condition C: The individual has their own independently established business of the same type as the work performed.
The first prong of the test examines whether the business controls the individual’s actions and manner of performance. The burden is on the hiring entity to establish that the work is free from such control. To provide more context, various examples have been provided by the courts that apply this condition. One example is of an employer that dictated the type of pattern that at-home knitters used while making sweaters. Because the company retained a degree of control over the design of the end product, they failed to satisfy Condition A. However, another company was successful in satisfying Condition A when a worker set his own schedule, worked without supervision, purchased his own materials, and declined an offer of employment.
The second prong of this test analyzes whether the individual provides services that are comparable to that of existing employees or are within the usual course of the hiring entity’s business. This condition has been satisfied when a retail store hires a plumber to repair a bathroom leak or an electrician to install a new electrical line. However, this condition has not been satisfied when a bakery hires a cake decorator to regularly decorate cakes, because this service closely resembles the work that is ordinarily being done at the company. Therefore, when approaching this condition, you should ask yourself whether the worker being assessed performs services that are already commonly done at your business or are similar to the work of your regular employees.
The third prong of the ABC test inquires whether the worker has their own business that is of a similar type of work as the hiring entity. If so, then it can be inferred that they would not simultaneously have their own business and be an employee of the hiring entity’s business. However, it is necessary that the individual’s business existed at the time they began work for your company. The fact that they could eventually create a similar business is irrelevant. To establish that the individual indeed has a business, they will also need to have taken tangible steps to create the business, such as incorporation, licensing, or advertising. However, labels are not dispositive, so the more contextual evidence the better.
Ultimately, determination of whether a person is classified as a contractor or employee varies on a case-by-case basis according to the above conditions. But all three conditions need to be met for a worker to qualify as an independent contractor. Therefore, the more evidence you can provide that supports these conditions, and the closer your situation resembles these examples provided by the court, the better. Either way, Dallo Law can guide you through this test and provide you with the best chance for properly classifying your workers under the ABC test!
Written by Adelaide Mickelson, Dallo Law Group