Image of two green signs on a pole. One sign points to the right and says "independent contractor," and the other sign points to the left and says "employee"

The New ABCs of Employer Liability: Recent Changes to Employee-Independent Contractor Tests May Leave Some Businesses More Open to Liability

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By: Brettlyn Miller
Junior Associate Editor, American Journal of Trial Advocacy

The line between the classification of an employee and an independent contractor can be thin but important, especially in terms of vicarious liability for an employer.  While there exists a gray area between the two, one state recently tightened its differentiation.  California’s Assembly Bill 5 (“AB 5”) passed legislation late last year and became effective on January 1, 2020, as amendments to California Labor Code and Unemployment Insurance Code.[1]  As a means of codifying Dynamex Operations West v. Superior Court of Los Angeles County,[2] a 2018 California Supreme Court’s decision, AB 5 modified the test for Californian independent contractors, instigating a three-factor “ABC Test.”[3]  This test will likely have notable implications for many hiring entities, and Californian workers and business owners should take notice. 

What are employees and independent contractors?

An employee is defined in the United States Code as “any individual employed by an employer,” where employment means allowance to work.[4]  In the context of Employee Retirement Income Security Act (“ERISA”) litigation, the Supreme Court has expounded on this definition by utilizing agency law guidelines for determining master-servant relationships.[5]  Agency law indicates that, among other factors, the employer’s control over the employee’s actions in order to accomplish the work is crucial.[6]  With greater control comes greater liability, as employers are typically liable for their employees’ negligent actions or actions done while in the “scope of employment.”[7] 

Although broad, this definition is discernible from that of an independent contractor: “one who, in pursuit of an independent business, undertakes specific work for another using his or her own means and methods without submitting to the control of the other person as to the details of the work.”[8]  Because the independent contractor acts on their own volition, the hiring body is not usually liable for the independent contractor’s actions.[9] 

How can a worker’s classification be determined?

Generally, the test to determine if a worker is an employee or an independent contractor, as hinted above, involves control.[10]  Put succinctly, the test to classify as an employee “is whether the employer, under the contract, whether oral or written, has the right to direct the time, the manner, the methods, and the means of the execution of the work.”[11] 

The ABC test, California’s “new” test (which is identical or similar to more than 10 other states’ preexisting tests), requires three factors be proved in order to classify a worker as an independent contractor; otherwise, the worker is considered an employee:

(A) The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
(B) The person performs work that is outside the usual course of the hiring entity’s business.
(C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed. [12]

Legal Implications

Hiring entities must understand this new test, especially those that normally hire independent contractors.  For example, many wedding photographers hire a second shooter (another photographer who photographs the wedding alongside the main photographer) to ensure that the wedding is captured from as many angles as possible.  Before AB 5, these second shooters could be considered independent contractors.[13]  Now, second shooters are going to be considered employees of the photographer (unless the photographer can successfully argue “negative” on all three points of the test).  Second shooters are (A) not free from the control of the photographer in connection with the work, because the photographer will be controlling performance and final product, and (B) not performing work outside the usual course of business for the photographer if the second shooter is photographing the wedding.  However, second shooters generally are (C) customarily engaged in an independent photography business or trade.  Because only one of the three prongs was answered affirmatively, second shooters in California are to be considered employees of photographers when second shooting.  Californian photographers now face a potential liability in their second shooters.  If the second shooter commits a tort, the photographer could be liable as the employer, whereas there would have been no liability on the photographer before AB 5. 

Overwhelmingly, this change is positive.  AB 5 protects many workers by classifying them as employees rather than independent contractors.  However, AB 5 could be a problem for small businesses that cannot afford to incur potential liability from their newly-classified employees. 


[1] Kimberly Arouh & Frederick C. Bingham, Effective January 1, 2020: California Law Reclassifies Independent Contractors as Employees, Buchanan Ingersoll & Rooney PC (Oct. 21, 2019), https://www.bipc.com/effective-january-1-2020-california-law-re-classifies-independent-contractors-as-employees; 2019 Cal. Legis. Serv. Ch. 296 (West 2019).

[2] Dynamex Operations W., Inc. v. Superior Court of Los Angeles Cty., 416 P.3d 1 (Cal. 2018).

[3] Arouh & Bingham, supra note 1.

[4] 29 U.S.C.A. § 203(e) (West 2019).

[5] Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 322-23 (1992).

[6] Id. at 323-24.

[7] Farlow v. Harris Methodist Fort Worth Hosp., 284 S.W.3d 903, 910 (Tex. Ct. App. 2009).

[8] Id. at 911.

[9] Id.

[10] See generally Nationwide Mut. Ins. Co., 503 U.S. at 323-24.

[11] Royal v. Ga. Farm Bureau Mut. Ins. Co., 777 S.E.2d 713, 715 (Ga. Ct. App. 2015) (quoting RBF Holding Co. v. Williamson, 397 S.E.2d 440, 441 (Ga. 1990)).

[12] 2019 Cal. Legis. Serv. Ch. 296 (West 2019).

[13] New California State Supreme Court Ruling Could Impact YOU, Prof. Photographers of Am. (Aug. 14, 2018), https://www.ppa.com/articles/new-california-state-supreme-court-ruling-could-impact-you.

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