INDEPENDENT CONTRACTOR RELATIONSHIP
How do I know if I am wrongly classified as an independent contractor?
A California law, called the AB 5 bill, determines employment status when a hiring entity claims that the person it has hired is actually an independent contractor under the law. AB 5 requires the application of the “ABC test” to determine if workers in California are employees or independent contractors.
What is the ABC test?
Under the ABC test, a worker is considered an employee and not an independent contractor, unless the hiring entity satisfies all three of the following conditions:
- The worker 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;
- The worker performs work that is outside the usual course of the hiring entity’s business; and
- The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
How do you apply the ABC test?
Below is a summary explanation of how to apply the ABC test.
Part A: Is the worker free from the control and direction of the hiring entity in the performance of the work, both under the contract and in actual practice?
- The hiring entity must establish that the worker is free of such control to satisfy part A of the ABC test.
- A worker who is subject, either as a matter of contractual right or in actual practice, to the type and degree of control a business typically exercises over employees would be considered an employee.
- Depending on the nature of the work and overall arrangement between the parties, a business need not control the precise manner or details of the work in order to be an employer.
PART B: Does the worker perform work that is outside the usual course of the hiring entity’s business?
- The hiring entity must establish that the worker performs work that is outside the usual course of its business in order to satisfy part B of the ABC test.
- Workers who provide services in a role comparable to that of an existing employee will likely be viewed as working in the usual course of the hiring entity’s business.
- Examples where services are not part of the hiring entity’s usual course of business:
- When a retail store hires an outside plumber to repair a leak in a bathroom on its premises.
- When a retail store hires an outside electrician to install a new electrical line.
- Examples where services are part of the hiring entity’s usual course of business:
- When a clothing manufacturing company hires work-at-home seamstresses to make dresses from cloth and patterns supplied by the company that will then be sold by the company.
- When a bakery hires cake-decorators to work on a regular basis on its custom-designed cakes.
PART C: Is the worker customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity?
- The hiring entity must prove that the worker is customarily and currently engaged in an independently established trade, occupation, or business.
- The hiring entity cannot unilaterally determine a worker’s status simply by assigning the worker the label “independent contractor” or by requiring the worker, as a condition of hiring, to enter into a contract that designates the worker an independent contractor.
- Part C requires that the independent business operation actually be in existence at the time the work is performed. The fact that it could come into existence in the future is not sufficient.
- An individual who independently has made the decision to go into business generally takes the usual steps to establish and promote that independent business. Examples of this include:
- Incorporation, licensure, advertisements; and
- Routine offerings to provide the services of the independent business to the public or to a number of potential customers, and the like.
- If an individual’s work relies on a single employer, Part C is not met.
Do AB 5 require use of the ABC test in all situations?
No. There are situations where the ABC test will not apply:
- Sometimes the law defines the employment relationship in a specific way. In such cases, the ABC test will not otherwise apply to establish employee status or employer liability.
- Additionally, where the ABC test doesn’t apply for a reason other than an express exception, the Borello testwill apply. The Borellotest relies upon multiple factors to make that determination, including whether the potential employer has all necessary control over the manner and means of accomplishing the result desired, although such control need not be direct, actually exercised, or detailed.
- Finally, the ABC test may not apply for certain occupations and contracting relationships. See Question below.
What are the exceptions to the ABC test?
Occupations where the Borello test applies instead of the ABC test:
- Certain licensed insurance agents and brokers
- Certain licensed physicians, surgeons, dentists, podiatrists, psychologists, or veterinarians
- Certain licensed attorneys, architects, engineers, private investigators and accountants
- Certain registered securities broker-dealers or investment advisers or their agents and representatives
- Certain direct salespersons
- Certain licensed commercial fishermen (only through December 31, 2022 unless extended by the Legislature)
- Certain newspaper distributors or carriers (only through December 31, 2020 unless extended by the Legislature)
Occupations or contracting relationships requires that additional requirements must first be met in order to use the Borello test instead of the ABC test:
- Certain professional services contracts for marketing; human resources administration; travel agents; graphic design; grant writers; fine artists; enrolled agents licensed to practice before the IRS; payment processing agents; still photographers/ photojournalists; freelance writers, editors, or newspaper cartoonists; licensed barbers, cosmetologists, electrologists, estheticians, or manicurists (manicurists only through December 31, 2021). Borello test applies to determine whether the individual is an employee of the hiring entity if initial requirements are met.
- Certain individuals performing work under a subcontract in the construction industry, including construction trucking (with certain specific conditions applicable to construction trucking only through December 31, 2021). Borello test apply to determine whether the individual is an employee of the contractor if initial requirements are met.
- Certain service providers who are referred to customers through referral agencies to provide graphic design, photography, tutoring, event planning, minor home repair, moving, home cleaning, errands, furniture assembly, animal services, dog walking, dog grooming, web design, picture hanging, pool cleaning or yard cleanup. Borello test applies to determine whether the service provider is an employee of the referral agency if initial requirements are met.
- Certain individuals performing services pursuant to a third party’s contract with a motor club to provide motor club services. Borello test applies to determine whether the individual is an employee of the motor club if initial requirements are met.
- Certain bona fide business-to-business contracting relationships. Borello applies to determine whether the business providing services is an employee of the business contracting for the services if initial requirements are met.
Are there protections if a worker is retaliated against because the worker complains about being misclassified and losing out on employee rights like being paid overtime?
Yes. Workers who face discrimination or retaliation in any manner whatsoever have legal rights that they can pursue against their employer. For example, if the employer fires a worker because they complain about being classified as an independent contractor, the worker can file a lawsuit seeking damages against the employer for the wrongful termination and unlawful retaliation.