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.