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The ABC test: employee or independent contractor?

In California the default is employee. For most work, a business that treats someone as a contractor must prove all three parts of a test — and the middle one is where many arrangements run into trouble.

3 min read · Last reviewed September 2026

Why classification matters so much

Employees get minimum wage, overtime, meal and rest periods, expense reimbursement, workers' compensation coverage and unemployment insurance. Genuine independent contractors are not covered by those employee protections.

Misclassification therefore does not produce one claim — it can produce several at once, which is why these cases can be larger than they first appear.

The three parts

Under Labor Code § 2775(b)(1), which applies for purposes of the Labor Code, the Unemployment Insurance Code and the wage orders, a worker is an employee unless the hiring entity shows that: A — the worker is free from the control and direction of the hiring entity in performing the work, both under the contract and in fact; B — the work performed is outside the usual course of the hiring entity's business; and C — the worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed.

All three must be satisfied, and the burden is on the hiring entity. Part B is often the hardest to meet: a delivery business engaging delivery drivers as contractors will struggle with it however the contract is written. (App-based rideshare and delivery drivers are a separate case: Proposition 22 sets its own rule for them in Business and Professions Code § 7451.)

What does not decide it

A written agreement calling you a contractor. Being paid on an invoice. Receiving a 1099. Having your own business license. All of these are consistent with either classification, and none of them settles the question.

There are also statutory exemptions for a number of occupations and relationships, including certain professional services and bona fide business-to-business arrangements (Labor Code §§ 2776–2784), which are genuinely complicated. An exemption from the ABC test does not make contractor status automatic; it means the older multifactor test from the Borello case applies instead (Labor Code § 2785(d)).

Look at part B first

It is often the fastest sorting question. Ask plainly: is the work I do the thing this business sells? If yes, contractor classification is on shaky ground under the ABC test however the paperwork reads — unless a statutory exemption applies.

Common questions

I signed a contractor agreement. Does that end it?
No. Classification turns on the actual relationship, including control “in fact,” not on the label the parties chose (Labor Code § 2775(b)(1)). Wage payment protections cannot be set aside by private agreement (Labor Code § 219).
What am I owed if I was misclassified?
Potentially unpaid minimum wage and overtime, meal and rest break premiums, unreimbursed business expenses (Labor Code § 2802), and associated penalties; many of these claims can reach back three years. Separately, willful misclassification carries civil penalties of $5,000 to $15,000 per violation, or $10,000 to $25,000 for a pattern or practice, when found by the Labor and Workforce Development Agency or a court (Labor Code § 226.8). This is why an assessment is worth getting.

Official sources

About this guide
Last reviewed September 2026 by the LA Law Hub editorial team against the official sources listed above. Laws, court rules, fees and local ordinances change, and how they apply depends on facts this guide cannot know. LA Law Hub is not a law firm. This guide is general information, not legal advice, and reading it does not create an attorney-client relationship. For advice about your own situation, speak with a lawyer licensed in California.

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