Assembly Bill 5 (AB 5) was signed into law by Governor Gavin Newsom in 2019, for the purpose of creating a legal definition of an employee vs an independent contractor with respect to employment status for an individual working in the state of California.
Under AB5, the application of the ABC Test is the prescribed method for making the proper determination of a worker’s status when an employer categorizes that worker as an independent contractor.
If a worker is an employee and not an independent contractor, the employer is bound by law to provide specific benefits and protections that are afforded to an employee under the Labor and Unemployment Insurance codes.
Using the ABC Test to Determine Employment Status
To avoid misclassification of an employee as an independent contractor, the ABC Test must be applied when there is any doubt about employment status. Through the ABC Test, a worker is deemed an employee under the law – not an independent contractor – UNLESS the employer meets all three conditions of the test.
- The worker performs his or her duties independently of the employer’s direct authority or instruction, both under the contract for the performance of said duties being performed and in reality;
- The worker performs those duties which are considered beyond the usual course of the employer’s business; and
- The worker ordinarily performs his or her duties as part of an independently established business, occupation, or trade of a similar nature to that involved in the duties that are being performed by the worker in question.
If the employer can only satisfy one or two of the above conditions, the worker must be classified as an employee under state law.
Application of the ABC Test
The following are some examples to better illustrate how each condition of the ABC Test would be applied to determine the employment status of a worker as it pertains to the duties being performed by their employer:
Condition One
Has the worker performed his or her duties independently of the employer’s direct authority or instruction, both under the contract for the performance of said duties being performed and in reality?
- The employer must prove that a worker is free of such direct authority or instruction of the employer.
- The worker exercises independent control over his or her own ability to perform the duties, making his or her own schedule, performing the duties without supervision of the employer, and taking any other additional independent steps to satisfy the contract or arrangement to perform the duties for which he or she has been hired
Condition Two
Has the worker performed duties which are considered beyond the usual course of the employer’s business?
- The employer must prove that a worker is not performing duties that are not routine or comparable to the employer’s day to day business operations.
- An example of this would be: an advertising company hiring an HVAC technician to repair the air conditioning in their offices when it stops working.
Condition Three
Does the worker ordinarily perform his or her duties as part of an independently established business, occupation, or trade of a similar nature to that involved in the duties that are being performed by the worker in question?
- The employer must prove that a worker was part of an independent business, occupation, or trade at the time that worker was hired to perform their duties.
- An example of this would be: that HVAC technician was offering his or her services as part of an established corporation or independent service provider to the public at the time those duties were performed for the advertising firm who required repair work on their HVAC unit.
Remember, if the employer fails to meet all three of these conditions to prove a worker is an independent contractor, the worker is classified as an employee under the law.
Does the ABC Test Apply in All Misclassification Challenges?
No, there are instances where the ABC Test does not apply. These may include cases where the definition of an employment relationship invalidates the ABC Test as a proper determining standard, or instances where a court of law deems an application of the ABC Test inappropriate, or certain occupations and/or employment relationships that have been deemed inapplicable under the criteria of the ABC Test.
In these instances, the Borello Test is applied to make an accurate, legal classification of a worker’s employment status.
Using the Borello Test to Determine Employment Status
The Borello Test, also referred to as The Right to Control Test, is a set of multi-factor criteria that helps to establish the worker-employer relationship by analyzing the amount of control the employer has over the worker, the type of skills required to perform the duties or services being offered, length of time, methods of payment, and the worker’s potential for earning a wage independently.
Unlike the ABC Test, where all three conditions must be satisfied by an employer to establish whether or a worker is an employee or an independent contractor, the conditions set forth in the Borello Test need not all be met in full in order to reach an accurate, legal classification.
The classification criteria as part of the Borello Test are the following:
- Does the employer supervise or instruct the worker during performance of his or her duties?
- Does the worker or employer have an obligation to give advance notice when intending to end the working relationship?
- Does the worker offer his or her services to the employer as part of an independently established business or provider?
- Does the worker normally perform duties that are outside of the employer’s established business?
- Does the worker make his or her own business decisions that can impact their ability to earn an income from the performance of his or her services?
- Does the worker invest his or her own money into procuring and maintaining the tools or equipment necessary for completing their duties or services?
- Does the worker possess a particular skill mandatory for performing the duties for which he or she has been hired?
- Does the worker have the capability or authority to hire or discharge other workers?
- Does the worker receive training from the employer in any capacity?
- Does the worker receive compensation based on the completion of a job when assigned instead of a fixed salary or hourly wage?
- Does the worker have a clear understanding of their status as an employee or independent contractor?
Satisfying one or more of these conditions can help make an accurate, legal classification of the worker’s employment status, but each situation will be considered on a case-to-case basis in the eyes of the law.
Categories of Workers Exempt from the ABC Test
If a worker is considered exempt from the ABC Test for determining proper status as employee or an independent contractor, the Borello Test is applied as a means for accurate classification.
Under California labor law, the following categories of workers would use the Borello criteria:
Qualifying Exempt Professions
These include occupations such as accountants, attorneys, commercial fisherman, direct sales, private detectives, insurance agents, and other professions where the worker-employer relationship can be assessed under Right to Control guidelines.
Contracted Professional Service Providers
These include workers providing contractual services in fields such as human resources, photography, graphic design, cosmetology and marketing, among others. However, the exemption applies only if all six of these requirements are met:
- Worker maintains a separate place of business
- Worker has the authority to negotiate his or her own fee
- Worker sets his or her hours
- Worker must hold a business license for work performed for six months or longer
- Worker demonstrates independent judgment of services, offered at his or her discretion
- Worker is operating an independent business that provides the same work as duties being performed.
Motor Club Service Providers
Workers hired under contract to perform services for certain Motor Clubs like AAA, Geico, and Quest, among others, qualify for exemption.
Real Estate Agents
Workers who hold a valid real estate license are exempt under the California Business and Professions Code (CBPC).
Repossession Agents
Workers who hold a valid repossession license are exempt under the California Business and Professions Code (CBPC).
Construction Subcontractors
Workers engaged in businesses performing duties as part of a subcontract for construction companies are exempt, as long as all of the seven following requirements are met:
- Subcontractor holds an executed agreement to perform the work.
- Subcontractor holds a valid license with the Contractors State License Board
- Subcontractor maintains a separate business location from the contracting company.
- Subcontractor holds the power or right to hire and terminate employees
- Subcontractor engages in business operations established in a jurisdiction where maintaining a business license or tax registration is mandatory
- Subcontractor is the primary financially responsible party in the event of errors or defects as a result of services provided.
- Subcontractor is operating an independent business that provides the same work as duties being performed.
Referral Agency Workers
Workers employed as referral agents who provide their clientele with referrals of service providers who perform those services under contract are exempt as long as all ten of the following requirements are met:
- Work performed is for a client located in a jurisdiction where the provider must hold a valid business license or tax registration.
- Service provider must hold a valid state contractor’s license in order to perform work.
- Service provider is not under direct control of the referring agency
- Service provider performs services as its own entity and not as a representative of the referral agency
- Service provider is free to set their own hours and schedule.
- Service provider has the authority to negotiate their own rates and fees.
- Service provider maintains their own supplies, tools, and equipment necessary to perform services.
- Service provider maintains a customer base free from restrictions or limitations from the referral agency
- Service provider is not subject to penalties for rejecting a contract or a client to which they have been referred
- Service provider is operating an independent business that provides the same work as duties being performed.
The labor laws and unemployment insurance codes in California can be complicated to understand and your employer has highly-skilled attorneys who know the laws inside and out. Don’t ever go it alone, especially when you are defending your rights under the law.
Have You Been Misclassified by Your Employer?
If you believe you have been denied the rights and protections of an employee due to misclassification by your employer, it’s time to call the Law Office of Fahim Rahman. Our team of experienced labor attorneys can help you determine if you have a case against your employer and advise you on which steps to take next.
Call us today. We are ready to fight for you.