ABC Test
The ABC test is a three-pronged legal test used by several US states, most notably California, Massachusetts, and New Jersey, to determine whether a worker is an employee or an independent contractor. Under the ABC test, a worker is presumed to be an employee unless the hiring business proves all three of, (A) freedom from control, (B) work outside the usual course of business, and (C) an independently established trade.
The three prongs
- A, Freedom from control. The worker must be free from the hiring entity's control and direction in connection with the performance of the work, both under the contract and in practice.
- B, Work outside the usual course of business. The work performed must be outside the usual course of the hiring entity's business. A software company hiring a software engineer as a contractor fails this prong almost automatically.
- C, Independently established trade. The worker must be customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
Why the C-prong fails most often
The C-prong requires the worker to already be running an independent business, not "able to" run one, but actually doing so. Evidence courts look for: LLC or sole-prop registration, multiple clients, own tools, own workspace, business liability insurance. A worker who only has the hiring company as a client, with no independent business identity, typically fails Prong C even if Prongs A and B are satisfied.
Which states use it
California (AB5, 2020), Massachusetts, New Jersey, Illinois, Connecticut, Vermont, plus variations in several other states. The federal IRS does not use the ABC test; it uses the common-law test, which is less strict.