The “ABC test” is a legal test used by many states in employment-related laws, such as for workers’ compensation or unemployment compensation, to determine whether a worker is an employee or independent contractor. It is a three-factor test, hence the name “ABC.” The ABC test gained notoriety last year when California incorporated it into a worker classification law referred to as “AB5” to make it easier to enforce the law against gig employers, like Uber and Lyft, who refused to treat their core full-time workers as employees and pay state employee taxes for them or provide them any benefits.
The ABC test is a simplified, bright-line test, as compared to the traditional common-law, multi-factor balancing tests used in California, New York, and other states, as well as by the IRS. It has also been adopted by the PRO Act as a way to bring freelancers into the National Labor Relations Act and give them collective bargaining. Some gig employers have abused the lack of bright-line clarity in the traditional test to insist that their core workers are independent contractors, and not employees, and thus not subject to state employee protection laws or taxes or eligible for benefits. California’s AB5 and other new state ABC tests under consideration are intended to curtail that abuse by providing a simpler rule with a somewhat expanded umbrella for employees. That said, because of the unique nature of professional writing services, the Authors Guild does not support using the ABC test for classifying freelance writers as employees broadly for employment taxes, benefit and other employment purposes and will continue to introduce amendments in states that are considering adopting the ABC test to exempt freelance writers from its application, and to instead classify them based on a flexible multi-factor framework (see below, AG Proposal for Professional Services Exemption from ABC Test). The Guild, however, supports use of the ABC test as laid out in the PRO Act to give freelance journalists and writers collective bargaining rights.
The three-part basic ABC test used in most laws states:
An individual performing any service shall be considered an employee and not an independent contractor, unless—
- the individual is free from control and direction in connection with the performance of the service, both under the contract for the performance of service and in fact;
- the service is performed outside the usual course of the business of the employer; and
- the individual is customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the service performed.
What this means is that a worker providing services is deemed an employee (and not an independent contractor) unless they meet all three of the ABC prongs. Conversely, if they meet all three prongs, they are deemed an independent contractor, not an employee.
Most of a typical professional freelance writer’s work will easily meet the A and C prongs, but not the B prong if the work is performed for a publication, such as a newspaper or magazine, where the publication written for is within the employer’s “usual course of business.” For instance, under the ABC test, writing for The New York Times would be work performed within “the usual course of the business of the employer,” and so the writer would be deemed an employee for purposes of the applicable law. When writing for Amtrak’s’ magazine or the Authors Guild’s Bulletin, on the other hand, where the publication is not within the usual course of the hiring entity’s business, the writer would be considered an independent contractor under the ABC test because they would meet the B prong. (In all cases, we presume that professional freelance writers meet the A and C prongs.) The B prong is not a factor in many common-law balancing tests, but has been included in the ABC test precisely so that companies have to treat their core workers—like drivers for a driving app service—as employees.
The fact that freelance writers and journalists could be treated as employees under the ABC test caused a great deal of consternation in California and received so much bad publicity that there is now a nation-wide movement to oppose these laws. Many freelance writers and other freelance creators have stated that they prefer to remain independent contractors for several reasons:
- Under the copyright law, employees do not get to keep their copyrights (unless a contract provides otherwise). Indeed, the Copyright Act does not even consider employees to be the “author” of any work they create as part of their employment. Nevertheless, in copyright matters, courts would continue to use the traditional, common-law agency test to determine who is an employee, not worker classification laws.
- Employees cannot deduct business expenses under the current tax code (on the other hand, they do not have to pay self-employment taxes).
- Some freelancers fear that if they are designated as employees under these laws, they will lose flexibility in working hours and workplaces, even though this does not have anything to do with their classification as “employee” or “independent contractor.” Policies about where and when employees work is governed solely by corporate policy, not law.
- Publishers and other potential (or past) employers might be deterred from hiring freelancers if they fear liability for paying taxes and benefits. Some California-based freelancers, for instance, saw work evaporate under the original AB5 because the publications they had previously worked for did not want to risk having to classify these writers as employees, and instead hired freelancers from other states or used existing employees to do the work.
To add more complexity, most state laws, including California’s AB5 law, do not use the ABC test by itself. Most include one or two additional categories of workers who can still be treated as independent contractors even though they fail the ABC test, and those categories usually encompass most freelance writers. The main additional test that writers tend to fall under is one for “professional services.” It contains a separate list of requirements that the worker must meet for their work to fall within the “professional services” category and be treated as an independent contractor and not an employee.
In New York, the Authors Guild is working on a professional services exemption to include in an ABC-type law under consideration by the state legislature. The Guild’s proposal below is a simplified version of a more complex test in California’s AB5 law. The original version of AB5 had a limit of 35 submissions per year per employer for freelance writers to fall within the professional services exemption—meaning that if a freelancer wrote every 10 days or more for the same publication, they would not meet that exemption and would be treated as an employee. The 35-submisions limit was eliminated by the amendment bill AB5527, which was enacted in September 2020, but by then the damage had been done, some freelancers had lost work, and the AB5 law had a bad name.
AG Proposal for Professional Services Exemption from ABC Test
- Presumption of employment (ABC test):
- Any person performing any services for a hiring entity shall be classified as an employee of the hiring entity unless it can be shown that the person is a separate business entity under subdivision two of this section or all of the following criteria are met, in which case the person shall be an independent contractor:
- the individual is free from control and direction in performing the job, both under his or her contract and in fact;
- the service must be performed outside the usual course of business for which the service is performed; and
- the individual is customarily engaged in an independently established trade, occupation, profession, or business that is similar to the service at issue.
2. Professional Services Exemption:
The presumption of employment set forth in subdivision (1) of this section shall not apply to workers under contract for professional services as defined [herein], if the individual:
- maintains a business location, which may include the individual’s residence, that is separate from the hiring entity;
- is skilled in the type of work being performed;
- has the ability to set or negotiate his or her own rates for the services performed;
- outside of project completion dates and reasonable business hours, has the ability to set his or her own hours;
- is customarily engaged in the same type of work performed under contract with one or more other hiring entities or holds himself or herself out to other potential hiring entities as available to perform the same type of work;
- customarily and regularly exercises discretion and independent judgment in the performance of the services; and
- generally supplies his or her own instrumentalities and tools in performing the services and has control over the details of his or her work.
3. “Professional services” means professional services or work provided under contract and on a freelance basis for present or future compensation by any of the following individuals:
- writers, including authors, playwrights, screenwriters, journalists, copywriters, or digital media writers or creators; or
- visual artists and designers, including without limitation fine artists, graphic designers, photographers, photojournalists, animators, illustrators, industrial product designers, interior designers, fashion designers, or webpage and digital designers.