Legal Definitions - ABC test

The ABC test is a legal standard used in some U.S. states to determine whether a worker should be classified as an employee or an independent contractor. This distinction is crucial because it affects various legal rights and obligations, including eligibility for unemployment benefits, workers' compensation, minimum wage, overtime pay, and employer tax contributions.

For a worker to be classified as an independent contractor under the ABC test, the hiring business must prove that all three of the following conditions (A, B, and C) are met:

• A. Absence of Control: The worker 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. This means the worker largely determines their own hours, methods, and sequence of work without significant oversight from the company.
• B. Business Outside Usual Course: The work performed is outside the usual course of the hiring entity's business. This condition looks at whether the worker is performing tasks that are central to the company's primary operations or are typically performed by its regular employees.
• C. Customarily Engaged in Independent Business: The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity. This means the worker operates their own separate business, offering similar services to the general public, not just to the hiring company.

If a hiring entity cannot satisfy all three of these criteria, the worker is legally presumed to be an employee.

Examples of the ABC Test in Practice:

• Scenario 1: A Freelance Web Developer for a Tech Startup

  A small tech startup hires a freelance web developer to build a new feature for their software platform. The developer works from their home office, uses their own equipment and software, sets their own working hours, and is paid per project milestone. The developer also maintains a portfolio of other clients for whom they build websites and applications.

  • A. Absence of Control: This condition is likely met. The startup provides the project specifications but does not dictate the developer's daily schedule, specific coding methods, or tools. The developer has significant autonomy.
  • B. Business Outside Usual Course: This condition is likely not met. The core business of a tech startup is developing software. Hiring a web developer to build a feature for their platform is directly within the usual course of their business, even if they don't have full-time developers on staff.
  • C. Customarily Engaged in Independent Business: This condition is likely met. The developer has an established independent business, a portfolio of other clients, and offers similar services to the general public.

  Conclusion: Because condition B is not met, the freelance web developer would likely be classified as an employee under the ABC test, despite being called a "freelancer."

• Scenario 2: An Office Cleaning Service for a Law Firm

  A law firm contracts with a commercial cleaning company to clean its offices three times a week after business hours. The cleaning company sends its own employees, who use their own cleaning supplies and equipment, and follow their company's cleaning protocols. The law firm's only involvement is granting access to the building and ensuring the work is done to a satisfactory standard.

  • A. Absence of Control: This condition is likely met. The law firm does not direct the individual cleaners on how to perform their tasks, what products to use, or their work schedule. Control rests with the cleaning company.
  • B. Business Outside Usual Course: This condition is likely met. A law firm's usual business is providing legal services, not commercial cleaning. The cleaning service is entirely separate from its core operations.
  • C. Customarily Engaged in Independent Business: This condition is likely met. The cleaning company is an established business that provides cleaning services to multiple clients, demonstrating an independent trade.

  Conclusion: All three conditions are met. The cleaning company (and its employees) would be classified as an independent contractor to the law firm under the ABC test.

• Scenario 3: A Ride-Share Driver for a Transportation App

  A driver signs up to provide rides through a popular ride-share application. The driver uses their personal vehicle, chooses when and where to log into the app to accept ride requests, and can decline specific requests. The app sets the fare, processes payments, and takes a commission, but the driver manages their own vehicle maintenance and fuel costs.

  • A. Absence of Control: This condition is often debated but could be argued as met, as drivers have flexibility in their hours and choice of rides. However, the app's algorithms, rating systems, and specific instructions for passenger interaction can exert a degree of control.
  • B. Business Outside Usual Course: This condition is likely not met. The primary business of a ride-share application company is facilitating transportation services. The drivers are performing the essential service that the company offers to its customers.
  • C. Customarily Engaged in Independent Business: This condition is often debated. While drivers use their own cars, many do not operate a separate, established transportation business outside of the app platform. They are often working primarily through the app, rather than offering their services to the general public as an independent entity with the app as just one client.

  Conclusion: Even if condition A is met, condition B is almost certainly not met, and condition C is often questionable. Therefore, under the ABC test, ride-share drivers are frequently classified as employees in states that apply this standard, as their work is central to the company's core business.