New Test for Independent Contractors

Effective January 1, 2020, the California Legislature enacted a new test for determining whether a worker is an employee or an independent contractor. Under the new test, called the ABC test, workers will be considered employees instead of independent contractors unless the employer proves the following:

A. The worker is free from the control and direction of the employer;

B. The worker performs work outside the usual course of the employer’s business; and

C. The worker is engaged in an independently established trade, occupation or business of the same nature as the work performed.

The employer bears the burden of proof on each of these factors.

The ABC test will have far-reaching implications for workers who are now treated as independent contractors. For example, many workers in the real estate, insurance, and financial services industries are classified as independent contractors. As a result, they do not receive the protections afforded to employees under California law, such as overtime pay and minimum wage, meal and rest breaks, and most importantly, reimbursement of business expenses. The new law will allow these workers to recover up to four years of wages they did not receive because they were misclassified as independent contractor.