AB 5 Misclassification
California’s AB 5 codified the Dynamex ABC test for determining independent contractor status, creating standards stricter than federal law. The ABC test applies to most workers for purposes of the Labor Code and Unemployment Insurance Code. Certain exempted occupations use the Borello test instead. Misclassifying employees as independent contractors triggers substantial penalties and liability for unpaid wages, benefits, and taxes.
The ABC test presumes workers are employees unless the hiring entity proves all three conditions: (A) the worker is free from control and direction in performing work, both under 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.
The Borello test applies to specific exempted occupations including licensed professionals (architects, engineers, lawyers, accountants, physicians), certain insurance agents, real estate licensees under specific conditions, and other occupations explicitly exempted under AB 5 and AB 2257. The Borello test is a multifactor balancing test examining control, investment, skill level, permanence of relationship, and whether the work is part of the employer’s regular business. Unlike the ABC test, no single Borello factor is determinative. Workers in exempted occupations are not automatically independent contractors—they must satisfy the Borello factors.
Federal law applies the economic reality test examining factors like degree of control, opportunity for profit or loss, investment in equipment, permanence of the relationship, and skill required. California’s ABC test is significantly more restrictive, particularly the B prong requiring work outside the usual course of business.
Common ABC test failures include delivery drivers for delivery companies, janitors for cleaning services, and software developers for tech companies. These workers perform services central to the business and fail the B prong regardless of control or independent business operations. For exempted occupations subject to Borello, classification depends on weighing all factors.
Penalties for misclassification include civil penalties of $5,000 to $15,000 per violation under Labor Code Section 226.8, liability for unpaid wages and overtime, meal and rest break premiums, unreimbursed business expenses, penalties under the Private Attorneys General Act, and liability for employer payroll taxes. A single misclassified worker can generate six-figure exposure.
Employers must evaluate all worker relationships under the ABC test unless the worker falls within a specific exemption requiring Borello analysis. Exemptions are narrow and strictly construed. When in doubt, classification as an employee provides greater protection than defending misclassification claims.
Have you audited your independent contractor relationships under California’s ABC test and identified which workers might be subject to the Borello test?
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Please note that this article is for informational purposes only and should not be considered and is not legal advice, and does not constitute an attorney-client relationship. It is recommended to consult with an attorney directly for specific guidance pertaining to your business or individual situation.
This post shares general information based on common patterns I see in California workplaces. It is not legal advice, does not create an attorney-client relationship, and outcomes depend on specific facts — no lawyer can guarantee a result. Past results do not guarantee or predict future outcomes. AI may have been used to create this post. All content reviewed by a CA attorney before publication. This post may be attorney advertising.
Michael Trust Law, APC, 703 Pier Avenue, Ste. B367, Hermosa Beach, CA 90254: michaeltrustlaw.com