Misclassification of Employees as Independent Contractors in California
What is the ABC Test in California?
The California state legislature recently passed AB 5, which defines who is an independent contractor and who is an employee under California law. AB 5 codified the “ABC test” for employment status. Under that test, a worker is an employee of a company unless the company can prove all three of the following:
(A) The worker is free from the control and direction of the company in connection with the performance of the work, both under the contract for the performance of the work and in fact.
(B) The worker performs work that is outside the usual course of the company’s business.
(C) The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
Drivers, distributors, janitors, home health care workers, and many others have filed misclassification lawsuits to recover damages for their misclassification.
Reasons for Independent Contractor Misclassification
Why have independent contractor misclassification cases become so common? Misclassifying workers as independent contractors can save a company millions of dollars in unpaid overtime, expense reimbursements, meal and rest period premiums, and other expenses. Indeed, the most common damages that workers seek in misclassification lawsuits include:
- Unpaid overtime for working more than eight hours in a day or 40 hours in a week
- Unpaid expenses for tools, gas, insurance, supplies, and many other items that misclassified workers are forced to pay out of pocket
- Unpaid meal and rest period premiums for the employer’s failure to provide 30-minute meal breaks and paid 10-minute rest breaks
- Reimbursement for unlawful deductions from workers’ paystubs
- Penalties for providing inaccurate paystubs
There are many exemptions to the new “ABC test” for employment status. For example, doctors, engineers, architects, private investigators, certain types of salespersons, among many others are exempted. This does not mean that these individuals are automatically considered independent contractors. Instead, the “right to control” or Borello test applies to these workers. Under Borello, a worker is an employee, and not an independent contractor, if the employer retains the right to control the manner and means of how the work is performed. Under the Borello analysis, courts can also analyze additional factors such as:
- whether the worker is engaged in a distinct occupation or business;
- whether the work is usually done under the direction of the principal or by a specialist without supervision;
- the skill required in the particular occupation;
- whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work;
- the length of time for which the services are to be performed;
- the method of payment, whether by the time or by the job;
- whether the work is a part of the regular business of the principal;
- whether the parties believe they are creating the relationship of employer-employee
There are several misclassification lawsuits moving through the courts where employers are arguing that federal law preempts the ABC test. Employers in these cases are arguing that the Borello test, and not the ABC test should apply to certain types of workers such as truck drivers.