California’s ABC Test Under AB 5: Employee or Contractor?

Got a 1099 in California but your “employer” sets your schedule, hands you the equipment, and manages your work like you’re any other staff member? You might actually be an employee under state law, even if federal law would call you a contractor. California generally uses the ABC test, one of the toughest independent contractor standards in the country, and it tends to favor workers. Here’s what it covers, how it became law, and what you may be owed if you’ve been misclassified.

What the ABC Test Actually Checks

Courts generally start by assuming a worker is an employee. To classify someone as a contractor instead, the business generally has to prove all three of these:

• A. The worker is free from the company’s control and direction.
• B. The work falls outside the company’s usual business.
• C. The worker runs their own independently established trade or business doing that same kind of work.

Missing even one factor generally means the worker qualifies as an employee, which is why the ABC test is so much harder for businesses to satisfy than other classification tests.

How We Got Here

In 2018, the California Supreme Court decided Dynamex Operations West, Inc. v. Superior Court, adopting the ABC test for Wage Order purposes and moving away from the older, more flexible Borello test. The legislature then passed AB 5 in 2019, which took effect in 2020 and extended the ABC test across most of the Labor Code and Unemployment Insurance Code. A year later, AB 2257 added a batch of industry exemptions, and lawmakers have kept refining that list ever since.

Breaking Down the Three Factors

A: Free From Control

This factor generally looks past the paperwork at how the work actually happens day to day. Signs of control can include a set schedule, company-provided tools or workspace, close supervision, required methods, or a ban on working for competitors. Any of these can sink Factor A on its own.

B: Outside the Usual Course of Business

This is generally the toughest one for companies to clear, especially when the worker’s job is central to what the company does. A delivery company generally can’t call its drivers contractors, and a cleaning company generally can’t do the same with its cleaners, because that work is the business.

C: An Independently Established Business

This factor generally asks whether the worker actually runs their own separate business, not just a title. Real indicators include a business license, business insurance, marketing to the public, multiple clients, self-set rates, and genuine business risk. Workers who exist only through one company’s arrangement generally don’t clear this bar.

ABC Test vs. Federal Law

California’s standard is generally much tougher than the federal economic reality test under the FLSA, for a few reasons. Workers are generally presumed employees from the start, rather than analyzed under a loose multi-factor balancing test. All three ABC factors generally must be satisfied, with no room to average out a weak factor against a strong one. Factor B in particular has no real federal counterpart, adding a hurdle many businesses can’t clear. And California workers who win misclassification claims may collect penalties and premiums that federal law simply doesn’t offer.

Where the ABC Test Has Hit Hardest

Owner-operator and delivery drivers have seen major reclassification because delivery is generally the core business of the companies that hire them. Home cleaners, health aides, and handymen placed through agencies often run into the same issue. Salon workers, certain construction workers, IT consultants placed through staffing firms, and some freelance writers and media workers all generally face ABC test scrutiny too, though a few of these fields also carry specific exemptions worth checking.

The Prop 22 Carve-Out for App-Based Drivers

Voters passed Proposition 22 in 2020, creating a specific exception for app-based rideshare and delivery drivers at companies like Uber, Lyft, DoorDash, and Instacart, provided certain conditions are met. The California Supreme Court upheld Prop 22 in the 2024 Castellanos decision. That said, Prop 22 generally only covers drivers who actually meet its requirements, and it doesn’t extend to gig workers outside that specific app-based category.

Who’s Exempt From the ABC Test

AB 5 and its amendments carve out exemptions for a range of professions, where courts generally apply the older Borello test instead. Exempt categories may include doctors, dentists, and psychologists; lawyers, architects, engineers, and accountants; licensed insurance agents and securities broker-dealers; certain direct salespeople and real estate licensees; and certain freelance writers, photographers, musicians, and commercial fishermen, each with their own specific requirements. Even in an exempt field, it’s worth checking the details rather than assuming the exemption applies automatically.

What You May Be Owed

Workers reclassified as employees may recover a broad range of damages, including back overtime (daily, weekly, and double time), meal and rest break premiums, waiting time penalties of up to 30 days’ wages, wage statement penalties, PAGA civil penalties, reimbursement for business expenses like mileage and phone bills, attorney’s fees, and interest. Workers can also generally bring parallel FLSA claims, which is why California misclassification cases often result in bigger recoveries than federal-only claims. Every case still comes down to its specific facts, and past results don’t guarantee a future outcome.

Time Limits Matter

Most California wage claims generally must be filed within three years, Unfair Competition Law claims allow up to four, and federal FLSA claims generally allow two years, or three for willful violations. Filing sooner rather than later helps protect your full recovery.

If You Think You’ve Been Misclassified

• Write down how your work actually happens: who assigns it, sets your schedule, and supervises you, and save your contracts, 1099s, and communications.
• Track your hours and any work expenses, since California generally requires reimbursement for necessary business costs.
• Note whether coworkers are in the same boat. Group claims and PAGA actions often lead to larger recoveries.
• Check whether your field falls under an ABC test exemption. Even under Borello, you may still qualify as an employee.
• Talk to a California employment attorney. Most wage cases run on contingency, so you generally pay nothing unless you recover.

Bottom Line

The ABC test under AB 5 gives California workers one of the strongest classification standards in the country. If your employer can’t prove all three factors, you may qualify as an employee under state law, even if federal law would say otherwise. If you’re working in California and getting a 1099 that doesn’t match how you’re actually treated on the job, it may be worth a closer look.

Josephson Dunlap, Lawyers for the Workers®, represents California workers in wage and hour matters, including misclassification cases under the ABC test and AB 5. We offer confidential case evaluations at no cost.