In California, all employees must be covered under their employer’s workers’ compensation insurance. Independent contractors, however, are not covered by this insurance, nor are employers required to purchase coverage for any independent contractors they do business with.
Unfortunately, many employers misclassify their employees as independent contractors to avoid paying for the appropriate insurance, so a better question may be: “Am I an employee?”
If you are an employee, you are entitled to workers’ compensation insurance!
The ABC Test
To address the problem mentioned above, Governor Gavin Newsom signed Assembly Bill (AB) 5 into law. AB 5 addresses the employment status of workers and introduces a set of criteria known as the ABC test.
To pass the ABC test, an employer must be able to answer the following questions:
- Part A – Is the worker free from the control and direction of the hiring entity in the performance of the work, both under contract for the performance of the work and in fact?
If the answer to the above question is yes, the employer has passed part A of the ABC test. Essentially, independent contractors work independently and are not managed by the hiring entity.
- Part B – Does the worker perform work that is outside the usual course of the hiring entity’s business?
If the answer to this question is yes, the employer has passed part B of the ABC test. Independent contractors should not be providing roles that are similar to those of regular employees.
For example, a plumber who fixes a pipe at a bakery would be an independent contractor, but someone who occasionally decorates cakes at that bakery would likely be an employee.
- Part C – Is the worker customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed by the hiring entity?
If the answer here is yes, the employer has passed part C of the ABC test. To be recognized as an independent contractor, workers must rely on work from multiple hiring entities and/or be operating an independent business in some way, shape, or form.
Remember that the ABC test is not appropriate in all situations. Additionally, it is the employer’s responsibility to prove that their worker is an independent contractor and thus exempt from workers’ comp coverage.
What If My Contract Says Something Different Than the ABC Test?
Under AB 5, employers can no longer designate a worker as an independent contractor by having them sign a contract. If you don’t pass the ABC test and you are not formally considered an employee by your hiring entity, you may be misclassified.
If this is true for you, you might also be eligible for workers’ comp benefits if you get injured.
To find out if you have a case, we encourage you to discuss your situation with our attorneys at the Law Offices of Andrew B. Shin.