An Employee Until Proven Otherwise: Determining Your Independent Contractor Status Under California Law

By Eileen Torrez 

Being misclassified as an independent contractor when you should be classified as an employee can have significant implications for workers. It can impact your job security, how much you pay in taxes, and whether you are protected by the law if something goes wrong. 

Learning more about the laws governing worker classification, or talking to an attorney about your work status, can help you determine if you should be classified as an employee or an independent contractor. 

What’s the main difference between employees and independent contractors? 

Both employees and independent contractors perform work in exchange for payment. Both have skills and expertise in their field, and a working relationship with the company or individual who pays them. But there are some key differences between these two roles. Essentially, independent contractors have the responsibility (and freedom) to determine their own work schedule and pay rate, while employees are often more subject to employer demands and requirements. Some employers consider it a benefit to hire employees rather than contractors for this reason. On the other hand, an employer can also save money by hiring independent contractors on a project-to-project basis, avoiding the costs associated with onboarding, payroll taxes and other provisions. 

Unfortunately, some employers may inappropriately classify a worker as an independent contractor from the start, without considering the details of the working relationship. This can disadvantage workers in the long run.

Why does it matter whether I am classified as an employee or as an independent contractor? 

While independent contractors have significant freedom in the control of their daily schedule and operations of their business, there are struggles that come along with independent work. In California, employees enjoy special protections under both federal and state law – protections that independent contractors do not have. These include: 

  1. Labor Protections: Employees are entitled to various federal and state labor protections including minimum wage, overtime, meal and rest breaks, access to workers’ compensation benefits, and unemployment insurance. They also experience greater protection against workplace discrimination. Independent contractors are not entitled to the same protections. 
  2. Benefits: Employees often receive health insurance, paid time off, retirement plans and employer-provided training. Independent contractors generally do not have access to these benefits, which can impact financial stability, job security, and overall well-being.
  3. Legal Rights and Remedies: If workers face workplace violations or mistreatment, such as wage theft or harassment, being classified as an employee ensures they have legal recourse to address such issues through avenues like filing complaints, pursuing legal action, or seeking representation.
  4. Tax Contributions: Employers are responsible for withholding income taxes, Social Security, and Medicare taxes from employees’ wages, as well as making their own contributions on behalf of employees. Independent contractors are responsible for paying self-employment taxes, including both the employer and employee portions of Social Security and Medicare taxes.
  5. Job Security and Stability: Employees are protected by laws governing termination, including notice requirements, severance pay, and protections against unfair dismissal. Independent contractors are more vulnerable to sudden termination without legal recourse.
  6. Collective Bargaining Rights: Employees have the right to join or form labor unions and engage in collective bargaining to negotiate wages, working conditions, and other employment terms. Independent contractors, as individuals running their own businesses, generally do not have the same collective bargaining rights.

How do I know if I’ve been misclassified as an independent contractor?

By default, any person performing work for a hiring entity in California is considered an employee, unless the employer can prove that certain conditions are met in the working relationship. There are two common tests that can help workers determine if they should be classified as an employee or an independent contractor. 

  1. The ABC Test: The CA State legislature codified the ABC test through Assembly Bill 5 (AB 5), setting it as the predominant standard used in California to determine whether a worker is an employee or an independent contractor. Under the ABC test, which applies to most industries, three important criteria must be satisfied to classify a worker as an independent contractor:
  1. Control: The worker must be free from the control and direction of the hiring entity in performing their work, both practically and contractually. 
  2. Nature of Business: The worker’s services must be outside the usual course of the hiring entity’s business. In other words, if the worker is performing tasks integral to the hiring entity’s core operations, they are likely to be classified as an employee.
  3. Independent Trade: The worker must be customarily engaged in an independently established trade, occupation, or business that is similar to the work they are performing for the client.

The ABC test is a simple test that applies to most workers in most industries. But there are some important exceptions. In September 2020, an amendment to AB 5 was introduced that provided exemptions to the ABC test for workers in specialized industries. The amendment (AB 2257) allowed more flexibility for certain professions and occupations to determine independent contractor status. Freelance writers, photographers, and truck drivers are just some of the workers whose status should not be determined by the ABC test. Instead, along with other specialized groups, these workers are properly classified using a more complex test known as the Borello Test.

  1. The Borello Test: Before the introduction of AB 5, the Borello test was the primary standard for determining worker classification in California. It is the appropriate test for workers falling under the exempted categories listed in AB 2257. It considers multiple factors, with no single factor being determinative. Key elements include:
  1. Level of supervision over the details of the work
  2. Opportunity for profit or loss based on personal skills, initiative, or business acumen
  3. Personal investment in equipment, tools, or facilities necessary to perform the work
  4. Degree of integration of the work with the hiring entity’s usual business operations
  5. Specialized skills and expertise required to do the work
  6. Permanence of the relationship between worker and hiring entity 
  7. Degree of hiring entity control over termination or discharge

Overall, worker classification pivots on the concept of control versus independence. If the hiring entity dictates how, when, and where the work is performed, that suggests an employer-employee relationship. Independent contractors should have more autonomy in deciding the details of their work. You may also consider whether the worker operates independently and has an established trade, occupation, or business. Independent contractors typically have their own tools, equipment, and client base. They have the freedom to work for multiple clients and take on projects at their discretion. A judge in a misclassification case is likely to consider a wide range of factors when determining how a worker should be classified legally. 

If I’ve been misclassified, what recourse do I have?

Worker misclassification can have significant legal, financial, and social implications for both employers and workers. Where misclassified employees have been denied benefits such as minimum wage, overtime pay, workers’ compensation, and unemployment insurance, they may be entitled to compensation in a court of law. Employers may face labor code penalties, back-pay claims, and other potential legal repercussions for misclassifying workers.

Get support today 

Determining whether a worker should be classified as an employee or an independent contractor in California requires a careful analysis of the worker’s relationship with the hiring entity. The ABC test and the Borello test provide frameworks for this analysis, but this area of the law is subject to future changes and it can be challenging to know which test may apply in a given situation at a given time. The totality of the circumstances and the actual working relationship must be considered. Speak to an attorney today if you need support analyzing your situation and deciding on your next steps.