Understanding the ABC test, AB 5, and your rights as a worker in California
The ABC test is the standard used in California to determine whether a worker should be classified as an employee or an independent contractor. Established by the California Supreme Court in Dynamex Operations West, Inc. v. Superior Court (2018) and codified in Assembly Bill 5 (AB 5) as Labor Code Section 2775, the ABC test presumes all workers are employees unless the hiring entity can prove all three of the following conditions:
All three prongs must be satisfied for a worker to be properly classified as an independent contractor. This test represents a significant shift toward worker protection and makes it much more difficult for businesses to classify workers as independent contractors.
Assembly Bill 5 (AB 5), which took effect January 1, 2020, codified the ABC test from Dynamex into California Labor Code Section 2775. AB 5 fundamentally changed worker classification in California by creating a strong presumption that workers are employees rather than independent contractors. The law requires hiring entities to prove all three prongs of the ABC test to classify workers as independent contractors.
AB 5 includes various exemptions for certain professions and industries, including licensed professionals like doctors, lawyers, and engineers, certain business-to-business relationships meeting specific criteria, and referral agencies. However, these exemptions have specific requirements that must be met, and workers in exempt categories are subject to the Borello multi-factor test instead. AB 5 has had significant implications for workers in the gig economy, including rideshare drivers, delivery workers, and freelance workers across various industries. The law aims to ensure workers receive employee protections and benefits while allowing truly independent business relationships to continue.
If you are misclassified as an independent contractor when you should be classified as an employee, you lose numerous legal protections and benefits under California law. Misclassified workers are denied minimum wage and overtime pay protections under Labor Code Sections 1194 and 510, meal and rest break rights and premium pay under Sections 512 and 226.7, expense reimbursement rights under Section 2802, unemployment insurance benefits, workers' compensation coverage, paid sick leave under the Healthy Workplaces, Healthy Families Act, and protection from wrongful termination and discrimination under the Fair Employment and Housing Act.
Additionally, you may be required to pay self-employment taxes (15.3% of net earnings) that should partially be the employer's responsibility. Misclassified workers also lack access to employer-provided health insurance, retirement benefits, and paid time off. If you have been misclassified, you can file a claim with the California Employment Development Department (EDD) or the Labor Commissioner's Office, or pursue a civil lawsuit to recover unpaid wages, benefits, unreimbursed business expenses, and applicable penalties including waiting time penalties under Section 203.
Several factors suggest you may be misclassified as an independent contractor when you should be classified as an employee. Key indicators include: the hiring entity controls when, where, and how you work; you perform work that is central to the company's regular business operations (for example, a driver for a transportation company); you work exclusively or primarily for one company; the company provides your tools, equipment, or workspace; you are required to attend mandatory meetings or training; the company sets your rates or prices rather than allowing you to negotiate; you cannot hire assistants or subcontract your work without approval.
Additional red flags include: the relationship is indefinite rather than project-based with a clear end date; you receive regular wages on a schedule rather than payment per completed project; you do not have your own independent business with multiple clients, business cards, advertising, or business licenses; and you do not have the opportunity for profit or loss based on your business decisions. Under California's ABC test codified in Labor Code Section 2775, if you cannot demonstrate that you meet all three prongs of the test, you are likely misclassified and should be treated as an employee with all associated rights and protections.
Yes, if you were misclassified as an independent contractor, you can recover back wages and other compensation you would have received as an employee. This includes unpaid overtime under Labor Code Section 510 (time-and-a-half for hours over 8 per day or 40 per week, and double-time for hours over 12 per day), minimum wage shortfalls under Section 1194 if your effective hourly rate fell below minimum wage, meal and rest break premium pay under Section 226.7 for each day compliant breaks were not provided, and unreimbursed business expenses under Section 2802 such as mileage, supplies, and equipment costs.
You can file a wage claim with the Division of Labor Standards Enforcement (DLSE) or pursue a civil lawsuit. The statute of limitations is generally three years for most wage claims under Section 1194. If you prevail, you may also be entitled to waiting time penalties under Section 203 if the violations continued through termination (up to 30 days of wages), interest on unpaid amounts, recovery of attorney's fees and costs under Sections 1194 and 2802, and civil penalties under the Private Attorneys General Act (PAGA) for Labor Code violations affecting other workers as well.
Yes, AB 5 includes numerous exemptions from the ABC test for specific occupations and industries codified in Labor Code Sections 2783 and 2784, though workers in exempt categories must still meet alternative tests to be properly classified as independent contractors. Exempted professions include licensed professionals such as doctors, dentists, lawyers, architects, engineers, and accountants; certain business-to-business contracting relationships meeting specific criteria including that the contractor maintains a business location, has a business license, can negotiate rates, and actually maintains an independent business; real estate licensees; commercial fishermen; and certain creative professionals like writers, photographers, and graphic designers working under qualifying conditions.
Other exemptions include insurance brokers, certain direct sales workers, licensed cosmetologists and barbers, construction subcontractors under specific circumstances, and various other specialized occupations. However, exemptions from the ABC test do not mean workers are automatically independent contractors. Exempt workers are generally subject to the multi-factor Borello test from S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341, which considers factors like control over work performance, economic dependence, whether the worker is engaged in a distinct occupation, and whether the work is part of the employer's regular business. Meeting an exemption simply changes which test applies, not the fundamental requirement of proper classification.
The ABC test and the Borello test are two different standards for determining worker classification in California. The ABC test, codified in Labor Code Section 2775, is the default standard and creates a presumption of employment unless the hiring entity proves all three prongs: (A) freedom from control and direction, (B) work outside the usual course of the hiring entity's business, and (C) the worker is customarily engaged in an independently established trade or business. It is a stricter, more worker-protective test that is easier to apply but significantly harder for businesses to satisfy, particularly the "B" prong regarding work outside the usual business.
The Borello test, from S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341, is a multi-factor balancing test that considers the totality of circumstances. Relevant factors include: the degree of control exercised by the principal over the work, whether the worker is engaged in a distinct occupation or business, the kind of occupation and whether the work is usually done under supervision, the skill required, who supplies the tools and workplace, the length of time services are performed, the method of payment (time-based vs. project-based), whether the work is part of the regular business of the principal, the parties' belief about their relationship, and whether the principal is in business. Borello applies to workers who fall under AB 5 exemptions and for certain purposes other than wage orders, such as determining employer liability for worker torts.
No, California law prohibits retaliation against workers who assert their rights regarding proper classification. Labor Code Section 98.6 prohibits employers from discharging, discriminating, or retaliating against workers who file complaints or claims with the Labor Commissioner regarding misclassification or wage violations. Additionally, Labor Code Section 1102.5 protects workers who disclose information about violations of law, including misclassification, to government agencies or internally within the company.
If you experience retaliation such as termination, reduction in work hours or assignments, threats, harassment, or other adverse actions after asserting your right to be classified as an employee, you can file a retaliation complaint with the Labor Commissioner's Retaliation Complaint Investigation Unit or pursue a civil lawsuit. Remedies for retaliation may include reinstatement to your position, back pay for lost wages, compensatory damages for emotional distress, punitive damages to punish egregious conduct, and attorney's fees and costs. The law also provides for civil penalties against employers who engage in retaliation under Labor Code Section 98.6, which can be substantial in cases involving multiple workers or systematic violations.
Worker misclassification has significant tax implications for both workers and employers. When properly classified as an employee, the employer must withhold federal and state income taxes, Social Security (6.2%), and Medicare taxes (1.45%) from your wages, and pay the employer's share of Social Security (6.2%), Medicare (1.45%), federal unemployment insurance, state unemployment insurance, and California's Employment Training Tax. The employer bears these costs and administrative responsibilities.
When misclassified as an independent contractor, you receive a Form 1099-NEC instead of a W-2, and you are responsible for paying self-employment tax totaling 15.3% of net earnings (both the employee and employer portions of Social Security and Medicare combined), plus estimated quarterly income taxes to both federal and state tax authorities. This means misclassified workers often pay significantly more in taxes and face quarterly filing requirements and potential penalties for underpayment. If you were misclassified, you can file IRS Form SS-8 to request a determination of worker status, and may be able to recover the employer's share of employment taxes. California's Employment Development Department (EDD) also investigates misclassification and can assess penalties, back taxes, interest, and penalties against employers who misclassify workers, protecting the state's unemployment and disability insurance funds.
If you believe you have been misclassified as an independent contractor, there are several steps you should take to protect your rights. First, gather documentation including your written contract or agreement, invoices or payment records showing payment history, emails or communications demonstrating control by the hiring entity over your work, detailed descriptions of your work duties and how they relate to the company's core business, company policies you were required to follow, and any evidence of expenses you paid that should have been reimbursed. Evaluate your situation against the ABC test criteria established in Labor Code Section 2775 to determine if you meet all three requirements for independent contractor status.
You can file a complaint with the California Employment Development Department (EDD) for a determination of your worker status, which affects unemployment insurance and state disability coverage eligibility. You can also file a wage claim with the Division of Labor Standards Enforcement (DLSE) to recover unpaid wages and benefits resulting from misclassification. Consider consulting with an employment attorney who can evaluate your case comprehensively, advise you on potential claims for unpaid overtime, meal and rest break premiums, expense reimbursement, waiting time penalties, and PAGA claims, and represent you in negotiations or litigation. Many employment attorneys work on contingency fee arrangements, and prevailing employees can recover attorney's fees and costs under Labor Code Sections 1194, 2802, and other provisions, making legal representation financially accessible.
Generate a professional, legally-compliant demand letter for misclassification claims in minutes.
Create Your Letter