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The ABC Test: California Labor Code Section 2775
California Labor Code Section 2775 codifies the landmark Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal.5th 903 decision. This law establishes a rebuttable presumption that a worker is an employee unless the hiring entity can demonstrate that ALL THREE of the following prongs are satisfied:
Prong A: Control
The hiring entity does not control the manner and means of accomplishing the work.
What This Means:
This prong examines whether the company exercises control over how the work is performed, not just what work is performed. Control can be actual or potential.
Examples of Control:
- Setting work schedules or hours
- Dictating work methods or procedures
- Requiring specific tools or equipment provided by the company
- Direct supervision or oversight of work performance
- Setting performance standards beyond just final results
- Requiring training on how to perform work
- Controlling where work is performed (office, worksite, etc.)
Court Perspective:
Courts look beyond contracts to the actual practice. Even if a contract states an independent contractor relationship, if the company exercises control in practice, Prong A may not be satisfied. The inability to control is what matters.
Prong B: Scope of Work
The work performed is outside the usual course of the hiring entity's business.
What This Means:
If the work the person performs is the company's core business (what the company primarily does), they cannot be an independent contractor under California law, even if Prongs A and C are met.
Examples Where Work IS Core Business:
- Delivery drivers for a delivery company
- Assembly line workers for a manufacturer
- Warehouse workers for a logistics company
Examples Where Work Is NOT Core Business:
- A plumber hired by a tech company to fix pipes in their office
- A marketing consultant hired by a manufacturing company
- An IT consultant retained by a law firm for specialized technical work
Court Perspective:
Courts examine whether the work is integral to the company's business operations. If the company couldn't function without that work, it's core to the business.
Prong C: Independent Trade
The worker is customarily engaged in an independently established trade or occupation of the same type as the work performed for the hiring entity.
What This Means:
This prong asks: Is the worker customarily engaged in an independently established business in the same field? The worker must have an independent business, not just the ability to do side work.
Examples Meeting Prong C:
- A licensed electrician who maintains their own electrical contracting business and takes jobs from multiple clients
- A graphic designer who operates a design studio and serves various clients
- An accountant with their own CPA practice serving multiple businesses
Court Perspective:
This prong is often the most difficult for a hiring entity to satisfy. Simply having a business license or doing occasional side work is insufficient. The worker must be actively and customarily engaged in an independent business in the same field.
Key Point: ALL THREE prongs must be satisfied for someone to be lawfully classified as an independent contractor under California Labor Code Section 2775. If even one prong is not met, the worker is presumed to be an employee.
The Borello Test: Common Law Multi-Factor Analysis
Before California adopted the ABC Test, courts used the Borello Test from S.G. Borello & Sons, Inc. v. Department of Industrial Relations (1989). While the ABC Test is now the primary framework under Labor Code Section 2775, the Borello Test remains relevant for:
- Analyzing independent contractor status in cases predating the ABC Test
- Certain industry-specific situations and exemptions
The Borello Test is a holistic, context-specific analysis that weighs multiple factors to determine the most likely character of a working relationship. No single factor is dispositive; courts balance them all together.
Borello factors
1. Control Over Work Manner and Means
The degree to which the putative employer controls the details of how work is performed. Greater control suggests employment; independence suggests contracting.
2. Right to Control the Result Only
Does the employer control only the final product/result, or also the process? Controlling the result alone favors contractor status.
3. Payment Method and Frequency
Employees typically receive regular, fixed wages. Contractors are often paid per project, per piece, or with payment contingent on completion.
4. Provision of Tools and Equipment
Who provides tools, materials, and equipment? Employer provision suggests employment; worker provision suggests contracting.
5. Location of Work
Work performed on the employer's premises under employer's control suggests employment. Off-site, independent work location may suggest contracting.
6. Duration of the Relationship
Ongoing, permanent relationships suggest employment. Short-term, project-based work may suggest contracting. However, long-term contractor relationships exist.
7. Skill Required
Highly specialized or skilled work, especially requiring individual judgment, may suggest contracting. Routine work suggests employment.
8. Company vs. Independent Business
Does the worker operate an independent business or business-like enterprise? Operating a recognized business favors contractor status.
9. Integral to Core Business
Is the work integral to the employer's core operations? Work integral to the business suggests employment.
Borello Approach: Courts evaluate the totality of circumstances. The factors are weighed rather than counted, no single factor is dispositive, and some factors may point one way while others point the other.
Key Factors Courts Examine in Classification Cases
Beyond the ABC Test and Borello factors, California courts examine these specific elements when analyzing worker classification:
Control of Work Performance
How Courts Apply It: Courts examine whether the company specifies how work is performed, provides training, sets work standards beyond just final results, or supervises the worker during work. Companies may argue they "just want results," but if they dictate methods, require meetings, or enforce processes, this indicates control.
Evidence: Work schedules, supervision records, training materials, performance evaluations, policy manuals, email communications directing work methods.
Tools, Equipment, and Investment
How Courts Apply It: Courts examine who provides essential tools and equipment. If the company provides software, computers, office space, and materials, this suggests employment. Independent contractors typically invest in their own resources. However, some independent contractors use provided tools (like Uber drivers using the platform).
Evidence: Equipment lists, software licenses, office lease agreements, initial setup costs, investment records, asset ownership documentation.
Schedule and Hours
How Courts Apply It: If the company sets specific hours, requires presence at certain times, or controls when work is performed, this strongly indicates employment. Independent contractors typically control their own schedule, though they must meet deadlines.
Evidence: Time sheets, schedule assignments, flexibility in choosing hours, ability to work for competitors, work calendar requirements.
Exclusivity and Competition
How Courts Apply It: Courts examine whether the worker can work for competitors simultaneously. If a company requires exclusivity or restricts the worker from competing, this indicates employment. Independent contractors typically work for multiple clients in the same field.
Evidence: Non-compete agreements, client/customer restrictions, statements about working for competitors, simultaneous relationships with other companies.
Relationship to Core Business
How Courts Apply It: If the work is what the company primarily does, the worker is likely an employee. If the work is peripheral or supplemental, contractor status may be more plausible. A delivery company's drivers perform core work; a tech company's janitor performs peripheral work.
Evidence: Company mission statements, job descriptions, budget allocations, company branding around the work, revenue generation from the work.
Independent Business or Trade
How Courts Apply It: Courts assess whether the worker operates an independent business. This includes holding a business license, maintaining a separate office, advertising to the public, serving multiple clients, and undertaking financial risk.
Evidence: Business license, business cards, website/marketing, multiple clients, separate bank account, business insurance, tax filings showing self-employment income.
Employee Benefits
How Courts Apply It: Employees typically receive health insurance, paid time off, retirement contributions, and unemployment insurance. Independent contractors receive none of these. Provision of benefits is strong evidence of employment.
Evidence: Benefit plan documents, health insurance enrollment, retirement plan participation, paid time off policies, workers' compensation coverage.
Tax Treatment
How Courts Apply It: Tax classification alone does not determine employment status, but it is a factor. W-2 status suggests employment; 1099 status suggests contracting. However, misclassified workers often receive 1099s despite being employees.
Evidence: IRS Forms W-2 or 1099-NEC, tax return filings, payroll records, Social Security withholding.
Termination Rights
How Courts Apply It: Employees can be terminated at-will or only per contract terms. If the company can terminate at any time without cause, this suggests employment (at-will employment). Independent contractors typically have explicit contract terms regarding termination.
Evidence: Written contracts, termination agreements, at-will employment statements, notice requirements, cause definitions.
Financial Risk and Investment
How Courts Apply It: Independent contractors bear financial risk and invest in their business. They may lose money if a project is unprofitable. Employees are paid regardless of profit. Significant personal investment in equipment, marketing, or infrastructure suggests contracting.
Evidence: Equipment purchases, liability insurance, business licenses, marketing expenses, investment in workspace, vehicles or specialized technology.
Common Exemptions from the ABC Test
The Labor Code sections that follow Section 2775 set out several exemptions where the ABC Test does not apply. Workers in these categories are classified under a different standard, the Borello test, rather than automatically treated as independent contractors.
Licensed Professionals
Licensed professionals, including physicians, surgeons, dentists, podiatrists, psychologists, lawyers, and accountants, may satisfy different criteria for independent contractor classification.
Requirements: The specific conditions are set out in Labor Code Sections 2776 to 2783 and differ by occupation.
Business-to-Business (B2B) Contracts
Contracts between two businesses may have different standards if certain conditions are met.
Requirements: The statute sets a list of conditions that must all be met, including a written contract, in the Labor Code sections cited above.
Real Estate Agents and Brokers
Real estate agents and brokers licensed under California law may be classified as independent contractors if specific statutory requirements are met.
Requirements: Must be licensed under California law; the specific conditions are in the statute.
Referral Agencies and Direct Sales
Limited exemptions exist for certain referral arrangements and direct sales.
Requirements: Must meet specific statutory conditions regarding referral-only relationships.
Labor Code Section 2783: Occupations Outside the ABC Test
Section 2783 is about which classification test applies, not about wage and hour protections. It provides that Section 2775 and the holding in Dynamex "do not apply" to the occupations it lists. Those occupations are still classified as employee or contractor, but under the multifactor Borello test rather than the ABC test. Being on this list does not remove minimum wage, overtime or any other substantive protection from anyone who is in fact an employee.
The list is of named professions and trades, not of pay arrangements. It covers insurance professionals licensed by the Department of Insurance; physicians and surgeons, dentists, podiatrists, psychologists and veterinarians providing professional services through health care entities; licensed lawyers, architects, landscape architects, engineers, private investigators and accountants; registered securities broker-dealers and investment advisers; direct sales salespersons meeting the conditions in Unemployment Insurance Code Section 650; manufactured housing salespersons; licensed commercial fishers; newspaper distributors and carriers; individuals conducting designated international exchange visitor programs; and competition judges, umpires and referees.
Do not confuse this with the overtime exemptions. Salaried employees above a salary threshold and commissioned inside sales employees are exempt from certain overtime requirements under Labor Code Section 515 and the applicable Industrial Welfare Commission wage order. That is a different question, decided by different rules, and it has nothing to do with Section 2783.
Important: Even if a worker falls into an exempt category, they may still be required to be classified as an employee. Exemptions are narrow and strictly construed by California courts. The ABC Test is the default framework for most workers.
Potential Remedies for Worker Misclassification
Educational Note: This section describes potential remedies available under California law if a court finds worker misclassification. This is general information only and does not apply to any specific situation. The availability and amount of remedies depend on the facts of each case, when the misclassification occurred, and applicable legal theories.
Common Remedies
Back Wages
Full compensation for all unpaid wages the worker should have received as an employee. This covers the difference between what they were paid and what they should have been paid under wage and hour laws.
Overtime Compensation
Unpaid overtime at the appropriate rates (typically 1.5 times the regular rate for hours over 8 per day or 40 per week; 2 times the regular rate for hours over 12 per day or 8 hours on the seventh consecutive day). Employers cannot offset overtime with 1099 payments.
Meal and Rest Break Premiums
One additional hour of pay at the regular rate of compensation for each workday on which a required meal period was not provided, and a separate hour for each workday on which a required rest period was not provided (Labor Code Section 226.7). The premium is calculated on a per-workday basis, not per missed break. Rest breaks are ten minutes per four hours worked or major fraction thereof; a meal period is required for a work period of more than five hours, and a second for more than ten.
Expense Reimbursement
California Labor Code Section 2802 requires employers to reimburse employees for all necessary expenditures or losses incurred in discharging their duties. This includes mileage, equipment, tools, and other work-related expenses.
Health Benefits and Contributions
Back contributions to health insurance, dental, vision, and other benefits the worker should have received. Some claims may include the cost of obtaining replacement coverage.
Statutory Penalties
California Labor Code Section 226.8 imposes penalties of $5,000 to $15,000 for each violation of willful misclassification, and $10,000 to $25,000 for each violation where the agency or a court finds a pattern or practice. The statute is written per violation; how violations are counted in a given case is a separate question.
Damages for Unfair Business Practices
Claims under California's Unfair Competition Law (Business and Professions Code Section 17200) can reach an unlawful business practice, but the remedies are narrow. Section 17203 authorizes injunctive relief and restitution only, and California courts have consistently held that damages are not recoverable under the UCL. Restitution means restoring money or property the defendant obtained from the claimant, not compensating for loss more broadly. The value of a UCL count is usually that it borrows an underlying violation and can reach a longer limitations period, rather than that it adds a category of damages.
Unemployment Insurance Benefits
Workers may be eligible to claim back unemployment insurance benefits if they were misclassified during the period in question, though these are typically state-administered claims.
Workers' Compensation Benefits
Misclassified workers may be entitled to workers' compensation coverage for work-related injuries or illnesses that occurred during the period of misclassification.
Attorney's Fees and Costs
In wage and hour cases, if the worker prevails, they may recover attorney's fees and litigation costs from the employer. This encourages employees to pursue valid claims.
Interest on Unpaid Wages
Back wages typically accrue interest at the prevailing legal rate, increasing the total recovery as time passes.
See also: unemployment insurance after a job loss.
Wiser Workplace is not a law firm and does not provide legal representation. This guide is general educational information about California employment law, not legal advice, and does not create an attorney-client relationship. Employment law changes often, and this guide reflects our understanding as of the date shown on this page; verify that it is still current before relying on it. About the legal citations on this page. Statutory and case citations are given so you can find and read the underlying law yourself, and they are offered for reference only. Verify any citation against the official text before relying on it. Codes are amended and cases are reviewed, depublished, or distinguished, so a citation that was accurate when this page was written may not be current. A summary of a provision is never a substitute for its text, and nothing here should be relied on without independent verification.
Statutes of Limitations: General Information
Claims related to worker misclassification have time limits for filing. The following represents general educational information about typical timeframes under California law. Do not rely on these timeframes for any specific situation.
Statutes of Limitations Overview
Wage Claims
General Timeframe: Typically 3 years from the date wages were owed, though some claims may be limited to 1 year.
Civil Action (Wage and Hour Class Action)
General Timeframe: Depends on the legal theory:
- Breach of a written contract: 4 years (two years for an oral contract)
- Wage and hour violations: 3 years (Code of Civil Procedure Section 338)
- Unfair business practices: a separate period under the Unfair Competition Law; confirm it before relying on it
Labor Code Section 226.8 Penalties
Claims for penalties related to willful misclassification.
General Timeframe: Depends on how the penalty is pursued; confirm the period before relying on it.
PAGA (Private Attorneys General Act) Claim
Workers may bring claims on behalf of themselves and other employees for Labor Code violations.
General Timeframe: 1 year; when the period begins to run in a given case is fact-specific.
Tolling and Extensions
The statute of limitations may be "tolled" (paused) in certain circumstances, such as when the worker did not know about the violation or was prevented from suing. Different rules apply to different types of claims.
Critical Important Notice
Do not rely on the timeframes above for your specific situation. Statutes of limitations are complex and depend on:
- The exact date wages were owed
- Whether the employer's conduct was "willful"
- When you discovered the violation (tolling)
- What legal theories apply to your situation
- Where the claim is brought
- Federal vs. state claim requirements
Deadlines are strict and cannot be extended in most cases.