What AB 5 means for classifying workers in California

Most states ask whether a business controls how work is done. California asks something harder. Under the ABC test, a worker is an employee unless the hiring business proves all three of the following.

The three prongs

**A** — the worker is free from the control and direction of the hirer in performing the work, both under the contract and in fact.

**B** — the work performed is outside the usual course of the hiring entity's business.

**C** — the worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed.

Prong B is where most arrangements fail. A bakery hiring a plumber satisfies it. A bakery hiring a baker does not, however genuinely independent that baker is in practice.

Exemptions

A long and frequently amended list of occupations is carved out — certain licensed professionals, some creative and professional services, business-to-business contracting relationships meeting specific conditions, and others. Exempt relationships are assessed under an older multi-factor test that weighs control alongside other considerations.

The exemptions are conditional rather than blanket. A profession appearing on the list does not settle the question; the specific conditions attached to that entry still have to be met.

What misclassification costs

• Unpaid overtime, meal and rest premiums, and expense reimbursement.
• Unpaid payroll taxes with interest and penalties.
• Waiting-time penalties where wages were unpaid at separation.
• Liability that can extend to individuals in some circumstances.

Practical points

• Test prong B first. If the work is what you sell, the rest rarely rescues it.
• Paper the relationship accurately, but understand that a contract calling someone a contractor is not determinative.
• Re-check classifications when your business changes what it sells. The same worker can move in scope without changing anything they do.