Key takeaways
- The California Supreme Court adopted the ABC test in Dynamex, presuming workers are employees.
- Assembly Bill 5 codified the ABC test and expanded its application beyond state wage orders.
- Hiring entities must prove all three prongs of the ABC test to classify a worker as an independent contractor.
- The previous Borello "economic realities" test still applies to specific statutory exemptions.
The Decision and the Legislation
The California Supreme Court fundamentally altered the legal framework governing worker classification by adopting the "ABC test" for distinguishing employees from independent contractors under the state's wage orders. On April 30, 2018, the Court issued its decision in Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal.5th 903. Authored by Chief Justice Cantil-Sakauye under docket S222732, the opinion replaced decades of legal precedent with a strict, conjunctive standard that presumes an employment relationship exists.
Following the judicial establishment of the ABC test, the California legislature acted to codify and expand this new framework. Assembly Bill 5, authored by Assemblymember Lorena Gonzalez, was signed into law by Governor Gavin Newsom on September 18, 2019. The legislation took effect on January 1, 2020. AB 5 codified the Dynamex ABC test and extended its application far beyond the state wage orders, making it the default standard for broader employment classifications.
The statutory placement of this framework has evolved through subsequent legislative action. AB 5 originally added Labor Code section 2750.3 to house the ABC test. The legislature later reorganized these provisions. The ABC test is now codified at Labor Code section 2775. The current article, comprising sections 2775 through 2787, was added through AB 2257 (Stats. 2020, ch. 38), which refined the statutory scheme and detailed specific exemptions to the general rule.
Why It Matters
The adoption of the ABC test represents a structural reallocation of legal risk and evidentiary burdens in California employment law. Under this framework, a worker is presumed to be an employee. The hiring entity bears the burden of proving all three prongs to establish independent-contractor status.
This presumption fundamentally changes the starting point of any classification dispute. Instead of a neutral inquiry into the nature of the relationship, the law assumes an employment relationship exists until the hiring entity proves otherwise. Because the test is conjunctive, the hiring entity must satisfy Prong A, Prong B, and Prong C. Failing to produce sufficient evidence for even one of these prongs results in the worker being classified as an employee as a matter of law.
This strict requirement eliminates the flexibility inherent in prior standards. A hiring entity can no longer offset a high degree of control with evidence that the worker provides their own tools or operates under a specific payment structure. The rigid nature of the three prongs forces businesses to ensure their operational models strictly conform to every element of the test, severely limiting the lawful use of independent contractors in California.
Who Should Care
For lawyers
Employment litigators face a transformed procedural environment. For defense counsel representing hiring entities, the burden of proof mandates a comprehensive evidentiary strategy from the outset of litigation. Because the worker is presumed to be an employee, defendants cannot rely on the plaintiff's failure to prove control. Instead, the defense must affirmatively marshal evidence proving Prongs A, B, and C. Failure to secure summary adjudication on all three prongs forces settlement or trial under unfavorable evidentiary conditions.
Plaintiff attorneys benefit from a streamlined path to establishing liability. By focusing discovery on defeating a single prong—often Prong B, which examines the usual course of the hiring entity's business—plaintiffs can efficiently secure employee classification. Both sides must conduct exhaustive statutory analysis to determine whether a worker falls under one of the express exemptions detailed in Labor Code sections 2775-2787. If an exemption applies, counsel must pivot to litigating the case under the older, multifactor standard.
For consumers and parties
Workers operating in California receive a powerful legal presumption that they are employees, entitling them to statutory wage and hour protections. This presumption applies regardless of any written contract. A worker cannot sign away their employee status; if the actual working relationship fails the ABC test, the worker is an employee under the law.
Businesses utilizing independent contractors face strict compliance obligations. Hiring entities must audit their entire workforce to ensure any independent contractors satisfy all three prongs of the ABC test. Misclassification carries substantial financial penalties. Companies must restructure their operations to either relinquish control, separate the contracted work from their core business, and ensure contractors operate independent businesses, or reclassify those workers as employees.
Legal Background
To understand the magnitude of the shift caused by Dynamex and AB 5, practitioners must examine the prior legal standard. Before Dynamex, worker classification in California was governed by the multifactor "economic realities" test established in S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341.
Under the Borello standard, the principal's right to control the work was the most significant factor considered by courts and agencies. However, this right to control was evaluated alongside several secondary factors. These secondary factors included various aspects of the working relationship, allowing courts to look at the totality of the circumstances surrounding the labor provided.
Critically, none of these secondary factors were dispositive. The Borello test required a qualitative weighing of all elements. A court could find that a hiring entity exercised substantial control over a worker, yet still conclude the worker was an independent contractor because the secondary factors weighed heavily in favor of independence. This balancing act provided hiring entities with broad flexibility to design independent contractor relationships, but it also generated unpredictability, as different fact-finders could weigh the same factors differently.
What the Court and Legislature Did
In Dynamex, the California Supreme Court rejected the Borello balancing test for wage order claims, replacing it with the ABC test. The legislature subsequently codified this test in AB 5 and AB 2257, establishing it as the general rule for the Labor Code. The ABC test requires the hiring entity to prove three specific elements to overcome the presumption of employment.
First, ABC test prong A requires that 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 and in fact. This dual requirement means that a carefully drafted independent contractor agreement is legally insufficient if the hiring entity actually dictates how the work is performed on the ground. The hiring entity must demonstrate a complete absence of control over the work's execution in practice.
Second, ABC test prong B requires that the worker performs work that is outside the usual course of the hiring entity's business. This prong presents the highest barrier for many businesses. If a company's primary enterprise is providing a specific service, it cannot classify the workers performing that exact service as independent contractors, because that work constitutes the usual course of the business. The contracted work must be peripheral or distinct from the core operations of the hiring entity.
Third, ABC test prong C requires that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed. This prong demands proof that the worker has established an independent business identity. The hiring entity must show that the worker independently made the decision to go into business for themselves and actively engages in that independent trade, rather than simply being designated as a contractor by the hiring entity for a single job.
How It May Be Applied
The application of the ABC test continues to generate extensive litigation and compliance efforts across California. Because the ABC test is now codified at Labor Code section 2775, it serves as the default standard for nearly all employment classification disputes. However, the legal framework remains bifurcated due to legislative exemptions.
The Borello standard continues to apply to the occupations and business relationships that AB 5 and its amendments expressly exempt from the ABC test. Through AB 2257, the legislature created a complex statutory scheme in Labor Code sections 2775-2787, carving out specific professions and business-to-business relationships from the strict requirements of the ABC test.
When a hiring entity asserts that a worker is an independent contractor, courts must first determine if the relationship falls under one of these express statutory exemptions. If the hiring entity successfully proves an exemption applies, the court will bypass the ABC test and evaluate the relationship under the Borello multifactor "economic realities" test. If no exemption applies, the court will enforce the ABC test, presuming the worker is an employee and requiring the hiring entity to prove Prongs A, B, and C. This dual-track system requires practitioners to precisely analyze the statutory text of the exemptions to determine which legal test governs a specific dispute.
Comparison of Classification Standards
| Feature | Borello Test | ABC Test |
|---|---|---|
| Presumption | Neutral inquiry | Worker is presumed to be an employee |
| Primary Factor | Right to control the work | None (all three prongs carry equal weight) |
| Secondary Factors | Several considered | None considered |
| Dispositive Elements | None of the secondary factors are dispositive | All three prongs are dispositive (failure of one equals employment) |
| Burden of Proof | Weighed by the fact-finder | Hiring entity bears the burden to prove all three prongs |
| Current Application | Express statutory exemptions under Lab. Code 2775-2787 | Default standard under Lab. Code 2775 |
Plain-English Summary
California law assumes that anyone performing work for a business is an employee. To legally classify a worker as an independent contractor, the hiring business must prove three specific things: that the business does not control how the work is done, that the work is completely different from the business's normal operations, and that the worker has their own independent business doing that type of work. If the business fails to prove even one of these points, the worker is legally an employee entitled to standard labor protections. While older, more flexible rules still apply to certain exempt professions, this strict three-part test is the default law for most workers in the state.
This article is general legal information and commentary about developments in California law. It is not legal advice, does not address your specific situation, and is not a substitute for advice from a licensed attorney. Reading this article and contacting us through this website do not create an attorney-client relationship.
Sources & authorities
- Cal. Lab. Code § 2775 — ABC test for employee vs. independent-contractor classification (AB 5, codifying Dynamex) — source
Further reading
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