In California, the distinction between an employee and an independent contractor is governed primarily by the ABC test under Labor Code § 2775 (AB 5).
Under the ABC test, a worker is presumed to be an employee unless the hiring entity can prove all three of the following:
A. The worker is free from the control and direction of the hiring entity in connection with the performance of the work.
B. The worker performs work that is outside the usual course of the hiring entity’s business.
C. The worker is customarily engaged in an independently established trade, occupation, or business.
If the employer cannot satisfy all three prongs, the worker is legally considered an employee.
The distinction matters because employees are entitled to:
- Minimum wage and overtime protections
- Meal and rest breaks
- Workers’ compensation coverage
- Unemployment insurance
- Reimbursement of business expenses
Misclassification can result in substantial liability, including unpaid wages, tax penalties, civil penalties, and exposure under the Private Attorneys General Act (PAGA).
In California, worker classification is one of the most heavily litigated wage and hour issues.
