The short answer
In California the starting assumption is that you are an employee. If a company treats you as an independent contractor, it is the company’s job to prove that classification was correct — not yours to disprove it.
That allocation is written into the statute, and it is why misclassification claims are often stronger than workers expect.
The ABC test
Labor Code § 2775(b)(1) states the rule and the burden in a single sentence:
“A person providing labor or services for remuneration shall be considered an employee rather than an independent contractor unless the hiring entity demonstrates that all of the following conditions are satisfied:”
Note “all”. Failing any one prong means employee status. The three are:
(A) Control. “The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.”
The phrase “and in fact” is doing real work. A contract that says you are independent does not help if the day-to-day reality is that you were directed, scheduled and supervised.
(B) Outside the usual course of business. “The person performs work that is outside the usual course of the hiring entity’s business.”
This is the prong that most often decides these cases. A delivery company engaging delivery drivers, or a salon engaging stylists, has difficulty with prong B no matter how the paperwork reads.
(C) Independently established trade. “The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.”
Usually a question of whether you genuinely have an independent business — other clients, your own tools, your own insurance and marketing — or whether the business exists only on paper because a single company required it.
The Department of Industrial Relations states the same starting point from the agency side: “The ABC test starts with an assumption that all workers are employees, and provides the test that a hiring entity must satisfy to prove that the workers are independent contractors.”
Exceptions exist
The ABC test is the default, not the universal rule. Labor Code § 2785(d) provides that where a hiring entity demonstrates compliance with the conditions set out in any one of §§ 2776 to 2784, then § 2775 and the Dynamex holding do not apply to that relationship, and the older Borello multifactor test governs instead. Section 2776 is one such exemption, covering certain business-to-business contracting relationships.
DIR confirms the structure: “While the ABC test applies for most workers, for some occupations and industries the Labor Code (sections 2775 et seq.) applies the Borello multifactor test.”
So the correct question is not only “do we pass ABC?” but “does a statutory exemption apply, and if so, what does Borello say?” Whether a specific exemption fits a specific arrangement needs the particular section read against the particular facts.
Why the classification matters
An employee is entitled to protections a contractor is not, including:
- Overtime, and meal and rest period protections — see wage and hour
- Reimbursement of business expenses
- The employer’s share of payroll taxes, rather than bearing it yourself
- Workers’ compensation coverage
- Protection under statutes that apply to employees
If the classification was wrong, those entitlements do not simply disappear because of what the paperwork said.
What tends to matter
- Who set your schedule, and whether you could decline work
- Whether you were supervised, reviewed or trained like staff
- Whether you used your own tools, or theirs
- Whether you had other clients in reality
- Whether the company required you to form an entity
- How similar your work was to what the company sells
If the classification was wrong
The consequence is not just a label change. Entitlements that were unavailable to you as a contractor may be recoverable for the period you were misclassified — unpaid overtime, meal and rest period premiums, and business expenses you absorbed yourself.
One practical point: because classification is normally decided once and applied to an entire category of workers, a single misclassification frequently indicates a group of them — which affects how the matter is best brought.
What actually applies in a given case depends on the facts and on which statutes were engaged, which is what an initial review works out.
How SoCo Law Firm approaches these cases
The firm’s founder, Michael Chang, previously served as staff counsel for a Fortune 500 company. Classification decisions are usually made once, centrally, and applied to a whole category of workers — which means where one person is misclassified, others frequently are too, and the company’s own documentation tends to show how the decision was reached.
Consultations are free and confidential.
A pay problem is sometimes part of something larger, such as discrimination or retaliation. Tell us everything that happened, and we look at the whole situation.
Every claim has deadlines, and some are short. We go over yours in the first conversation.
Questions people ask
Frequently asked questions
- What is the ABC test?
- Labor Code section 2775(b)(1) provides that a person providing labor or services for remuneration is considered an employee rather than an independent contractor unless the hiring entity demonstrates all three conditions: freedom from control and direction, work outside the usual course of the hiring entity's business, and being customarily engaged in an independently established trade of the same nature.
- Who has to prove what?
- The hiring entity does. The statute states the worker is considered an employee unless the hiring entity demonstrates the conditions are satisfied. The DIR states the ABC test starts with an assumption that all workers are employees and provides the test a hiring entity must satisfy to prove otherwise.
- Does signing a contractor agreement settle it?
- No. Prong A asks whether the person is free from control and direction both under the contract and in fact. A contract describing someone as an independent contractor does not control if the day-to-day reality is different, which is why these cases turn on how the work was actually performed.
- Are there exceptions to the ABC test?
- Yes. Labor Code section 2785(d) provides that if a hiring entity demonstrates compliance with the conditions in any one of sections 2776 to 2784, section 2775 and the Dynamex holding do not apply and the Borello multifactor test governs instead. DIR confirms that for some occupations and industries the Borello test applies.
- What does misclassification actually cost me?
- Being treated as a contractor can mean losing overtime, meal and rest break protections, expense reimbursement, and the employer's share of payroll taxes. If the classification was wrong, those entitlements may be recoverable. What applies depends on the facts and on which statutes were engaged.
