Understanding the “ABC Test” for Worker Classification
The “ABC Test,” which is used by many states, including California, is a legal standard used to determine whether a worker should be classified as an employee or an independent contractor.
This classification affects eligibility for various employment protections, such as minimum wage, unemployment benefits, and workers’ compensation. The test is structured into three distinct criteria:
Why Misclassification Matters for Business Owners
Employers who misclassify workers—whether intentionally or by mistake—face significant risks, including:
A. Control and Direction
The worker must operate free from the hiring entity’s control and direction, both in the contractual agreement and in actual practice. This means the employer does not dictate how, when, or where the work is performed.
B. Usual Course of Business
The service provided by the worker must be outside the usual course of the hiring entity’s business. For instance, a delivery driver working for a restaurant would typically be considered an employee, as delivery is central to the restaurant’s business operations.
C. Independently Established Trade
The worker must be customarily engaged in an independently established trade, occupation, profession, or business of the same nature as the service performed. This implies that the worker has their own business or profession and offers services to the general public, not just to the hiring entity.
Legal Background and Application
The ABC Test gained prominence through the California Supreme Court’s decision in Dynamex Operations West, Inc. v. Superior Court in 2018. In this case, the court ruled that workers are presumptively employees under California’s wage orders, placing the burden on employers to prove that workers are independent contractors by satisfying all three prongs of the ABC Test.
Following this decision, California Assembly Bill 5 (AB 5) was enacted in 2019 to codify and extend the ABC Test’s application across various employment contexts in the state. AB 5 aimed to ensure that workers, especially in the gig economy, receive appropriate labor protections unless employers can meet the stringent criteria set forth in the ABC Test.
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