IC or Employee?
Most California employers who classify workers as independent contractors are wrong. The classification fails under California’s ABC test, and the consequences include substantial liability for unpaid wages, benefits, taxes, and civil penalties.
California law presumes all workers are employees unless the hiring entity proves all three elements of the ABC test established in Dynamex Operations West, Inc. v. Superior Courtand codified in AB 5. The employer bears the burden of proof on each element. If the employer fails on any single element, the worker is an employee under California law.
⚠️ Part A requires that the worker is free from the control and direction of the hiring entity in performing the work, both under contract and in fact. If you set the worker’s schedule, require specific methods or procedures, provide training, or supervise the work product, you likely fail Part A. Many employers who believe they pass this element actually exert sufficient control to establish an employment relationship.
Part B requires that the worker performs work outside the usual course of the hiring entity’s business. This is where most misclassifications fail. If a staffing company classifies recruiters as independent contractors, those workers perform work within the usual course of the company’s business. If a retail business classifies sales associates as independent contractors, the business fails Part B. The work must be outside the hiring entity’s regular business operations, not merely supplemental to them.
Part C requires that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed. This means the worker maintains an independent business separate from the relationship with your company, actively markets their services to other potential clients, and derives income from multiple sources. A worker who performs services exclusively or primarily for your company does not satisfy Part C.
The financial consequences of misclassification are severe. Employers owe misclassified workers unpaid overtime premiums, meal and rest break premiums, unpaid sick leave, minimum wage adjustments, and reimbursement for business expenses. The employer also owes payroll taxes, unemployment insurance contributions, workers’ compensation premiums, and civil penalties under PAGA representative actions (which differ from class actions). These amounts accumulate over the entire period of misclassification and can exceed the total compensation paid to the worker.
Some employers point to AB 2257 exemptions or professional services exclusions. These exemptions have narrow requirements and strict limitations. Simply because a worker falls within an exempt occupation does not automatically satisfy the ABC test—the exemption may only apply to specific statutory provisions, leaving the employer exposed to claims under other laws.
Are you confident your independent contractor relationships satisfy all three elements of the ABC test? Have you documented the factors supporting independent contractor status? Most employers who believe their classifications are defensible have not adequately analyzed the relationship under California law.
If you need guidance on worker classification, ABC test compliance, or responding to misclassification claims, consult with an employment attorney who understands California’s requirements.
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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 employment 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