The ABC test, from the statute up

Primer · Classification · Revised June 2026

Who counts as an employee in California — Dynamex, Labor Code section 2775, and why prong B decides most misclassification cases.

Whether you are an employee is not a matter of what your contract says, what your title is, or how you are paid. It is a legal conclusion — and in California, the test for reaching it is written to be hard for companies to pass. If you have been told you are an independent contractor and something about that has never sat right, this primer explains the test that actually governs, and why the label on your paperwork is the least important fact in the analysis.

1 · Why classification is the whole ballgame

Nearly everything in California employment law attaches to employee status. Minimum wage and overtime. Meal and rest periods. Reimbursement of work expenses. Paid sick leave. Unemployment insurance. Workers’ compensation. Payroll taxes the employer, not you, must carry. Protection from discrimination and retaliation. A contractor gets none of it from the hiring company — which is precisely why misclassification is profitable. Calling a workforce “independent” moves the costs of employment from the company’s ledger onto the workers’, usually to the tune of a quarter to a third of payroll.

The law responds to that incentive with a presumption: a person providing labor or services for pay is presumed to be an employee, and it is the hiring entity’s burden — not yours — to prove otherwise.¹

2 · From Borello to Dynamex

For thirty years the question ran through S.G. Borello & Sons — a flexible, multi-factor inquiry with “control” at the center and a dozen secondary considerations orbiting it.² Flexibility is a polite word for unpredictable: with enough factors, a company can always argue its way to a few.

In 2018, Dynamex changed the architecture for wage-order claims. The Supreme Court adopted the ABC test: a worker is an employee unless the hiring entity proves all three of the prongs described below. Not a balance. Not a totality. All three, with the burden on the company.³ The Legislature then wrote the test into statute — Assembly Bill 5, now codified at Labor Code section 2775 — and extended it beyond the wage orders to the Labor Code and unemployment insurance generally.⁴

3 · The three prongs

A — free from control. The worker must be free from the hiring entity’s control and direction in performing the work, both under the contract and in fact. “In fact” is doing the work in that sentence: a contract reciting independence means little if a supervisor sets your schedule, scripts your customer interactions, or requires your attendance at trainings.

B — outside the usual course of the hiring entity’s business. The work must be outside the company’s ordinary business. A plumber fixing a bakery’s sink is outside the bakery’s business. A baker baking the bakery’s bread is not — whatever the paperwork says. This is the prong companies fail.

C — an independently established trade. The worker must actually be in business for themselves — the license, the clientele, the marketing, the choice — not merely permitted to work for others in theory. An “independent business” that consists of one customer is usually an employee with extra paperwork.

4 · Why prong B decides

Because the company must prove all three prongs, you only need one to fail — and prong B is the one that can often be proved from the company’s own words. What does it tell customers it does? What does its website sell? If a delivery company’s drivers, a salon’s stylists, or a clinic’s nurses are “contractors,” prong B asks a question the company has already answered in its own marketing. The hiring entity’s homepage may help show what business it holds itself out as conducting.

5 · The exceptions — and what they actually do

The statute carries a long list of occupational exceptions — certain licensed professionals, business-to-business arrangements, referral agencies, professional services meeting detailed conditions.⁵ Two things about them are widely misunderstood. First, the exceptions are narrow and conjunctive: a business-to-business exemption, for example, has a dozen requirements, and the company must satisfy the lot. Second — and this is the part most people miss — an exception does not make you a contractor. It only moves the analysis back to Borello, where the company must still prove independence under the older test. An exception is a change of venue, not a verdict.

App-based drivers sit under a separate regime: Proposition 22, the 2020 initiative, which the Supreme Court upheld in Castellanos v. State of California (2024). If you drive for an app platform, your classification questions run through that scheme’s own rules and benefits — a different primer’s subject.

One more boundary worth naming: federal tests differ. The FLSA uses an economic-reality analysis; the IRS uses its own factors. It is entirely possible to be a contractor for federal tax purposes and an employee under California law at the same time. California’s test governs California’s protections.

6 · If you have been misclassified

Employee status, once established, applies retroactively — and the remedies reach back with it: unpaid minimum wage and overtime, meal and rest premiums, expense reimbursement, inaccurate wage statements, generally across a three-year window and sometimes four.⁶ Willful misclassification carries its own civil penalties.⁷ And raising the issue is protected activity: a company that terminates a worker for asserting employee status has usually converted a wage case into a retaliation case, which is rarely an improvement from its side of the table.

What to keep: your contract, invoices or pay records, schedules, the instructions you were given, and anything showing how the company describes its business to the world. What not to do: nothing. The presumption is already working for you; the records make it decisive.

If you are being called a contractor and treated like an employee, write to us. Bring the contract and three months of records, and we will tell you which side of the line the facts actually fall on.

1. Lab. Code §2775(b)(1).
2. S.G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341.
3. Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal.5th 903.
4. Lab. Code §§2775–2787 (A.B. 5, as amended by A.B. 2257).
5. Lab. Code §§2776 (business-to-business), 2778 (professional services), 2777 (referral agencies).
6. Code Civ. Proc. §338; Bus. & Prof. Code §17200 (four-year restitution period).
7. Lab. Code §226.8.

Related writing: Meal periods, rest breaks, and the hour of pay most workers never see · How California’s retaliation framework actually works

This article states California law as of its revision date and is analysis, not legal advice. Reading this site does not create an attorney-client relationship. Attorney advertising.