AB 5’s Borello Test explained


Editor’s note; This article is the second in a four-part series explaining the new gig worker law, Assembly Bill 5. In an effort to clear the muddy waters regarding this complicated and not clearly defined law, Valley News took an online course with lawyer Kiffanie Stahle who specializes in gig workers, specifically designed to answer some of the more difficult to understand aspects of the law. In part one, we explained AB 5 and took a brief look at each of three tests used to determine the classification of employees and independent contractors. In this installment, Valley News will explain the Borello Test in full and what gig workers and employers can do to retain independent contractor status.

While this article serves to inform readers, it is important to note that employers and independent contractors should retain legal counsel if there are questions of concerns regarding Assembly Bill 5 for their specific business.

What is AB 5?

AB 5, which took effect Jan. 1, is legislation written by San Diego Assemblymember Lorena Gonzalez and codified into law the Supreme Court of California case, Dynamex Operations West Inc. v. The Superior Court of Los Angeles County. The law requires companies that hire independent contractors to reclassify them as employees, with a few exceptions, including insurance agents, attorneys, real estate agents and certain types of business-to-business contractors and referral agencies.

Companies that are not exempt must take a closer look at how they classify employees and independent contractors to ensure that they’re not violating the terms of the law.

Determine the worker’s status

Under AB 5 employers should look at one very specific question. Who is in control? If the hiring entity is in control, the gig worker is actually an employee. If the gig worker is in control, then under the new law, they “might be” an independent contractor.

Once the employer has answered the initial question of control and determined the employee might be an independent contractor, then one of three tests, the IRS test, the Borello Test or the ABC Test should be used to determine the status of the worker. In this article, Valley News will explain the Borello Test and how to apply it to determine if workers are employees or independent contractors

Apply the Borello Test

As with all the tests, the Borello Test operates on the presumption that all workers are employees. Employers can use this test to prove that the worker is not an employee but rather an independent contractor. The Borello Test uses several factors to determine if the hiring party has control over the work that is being performed.

The factors considered are:

Does the worker hold themselves out as being a business owner that is distinct from the hiring party?

Is the worker’s job a regular or integral part of the hiring party’s business?

Does the worker supply the tools, equipment and supplies to perform the services?

Does the worker provide the location for performing the services?

Has the worker invested in equipment, materials or tools required to perform the services?

Do the services provided by the worker require any specialized skills?

Is the kind of work performed usually done without supervision or direction?

Is the worker able to make a profit or loss in performing the work?

How long will the relationship last?

How permanent is the working relationship?

How is the worker paid for the services, on a time-basis or by the job?

Can the worker hire their own employees or other helpers to help perform the work?

How does the relationship end?

What kind of relationship do the parties intend to create?

Once all the questions have been answered, then the employer must weigh them to decide if they can prove the relationship is an independent contractor or gig worker.

When to use the Borello Test

Only certain kinds of workers are eligible for the Borello Test, and even if the workers are part of the list of required workers to include licensed accountants, licensed attorneys, licensed insurance agents or brokers and direct salespeople with a written independent contractor agreement in place, additional requirements must be met before the test can be used.

One note on direct salespeople, they must be paid on commission or paid for each sale, not on a time basis, to be eligible to use the Borello Test.

In addition to the list of workers eligible for the Borello Test, other professional service roles might be eligible, including marketing that includes original and creative work, graphic design, grant writing, fine art, still photographers, photojournalists and writers, editors or cartoonists.

Photographers, photojournalists, writers, editors and cartoonists are all limited to 35 submissions or less per year. A submission under AB 5 is defined as pertaining to a single subject or topic that fulfill the contract’s scope of work and that are accepted, published or posted. The definition of a submission is clear that content produced on a recurring basis on a general topic cannot qualify as a single submission.

If the worker meets all the requirements, then the employer must make sure they meet six criteria to label the worker as an independent contractor.

Effective July 1, the worker must have their own business location separate from the employer’s location, which can be in the worker’s own residence.

The worker must have a business license and all other permits and licenses required for the services being performed.

The worker must be able to set or negotiate the rate of pay.

The worker can set their own hours, but the employer can set completion dates and expect the worker to be available during business hours.

The worker offers services to other potential employers or is contracted for similar services with others.

The worker exercises discretion and independent judgement about how to best perform the services they are providing.

If the worker meets all the criteria, the Borello Test can be used to decide if the worker is an employee or an independent contractor. If the worker doesn’t have all six criteria, and are providing business to business services, then the employer can try to use one final exemption consisting of 12 criteria, all of which must be met to use the Borello Test.

The business owner is free from control or direction when it comes to performing the work.

The worker is providing services directly to the business, not the business’ clients or customers.

The contract between the hiring party and the worker is in writing.

The worker has all business licenses, permits and tax registrations required for the kind of business they run.

The worker has a business location that is separate from the employer or hiring party.

The worker is being hired for the services that the business usually performs.

The worker has other clients and can offer their services to others without the hiring party’s permission.

The worker advertises and hold themselves out as available to be hired.

The worker provides all their own tools, equipment and supplies necessary to perform the services.

The worker can negotiate their own rates.

The worker sets their own hours where they work.

The worker is not performing any services regulated by the contractor’s State License Board.

If the worker meets all the criteria, employees can use the Borello test to decide if they are an employee or an independent contractor.

If they don’t meet all the criteria, the employer will be required to use the ABC or Dynamex Test, which will be explained in the Jan. 31 edition of Valley News.

A note on misclassifying an employee

Misclassifying an employee as an independent contractor can prove to be expensive if a business is caught doing so. A single month can easily lead to upward of $10,000 in fines and penalties. According to Stahle, there is one penalty alone that ranges from $5,000 to $25,000. Some of the fines and penalties include failure to pay minimum wage, failure to pay overtime, failure to pay for missed meal periods, failure to pay for missed rest periods, failure to reimburse business expenses, failure to provide accurate and itemized pay stubs and failure to pay on each payday.

Kim Harris can be reached by email at valleyeditor@reedermedia.com.