In California, worker classification is an evolving hot topic. If you’ve heard of the Borello test, you may be wondering how and when it should be used.
This confusion is warranted. Since the enactment of Assembly Bill 5 in January 2020, the 3-factor ABC test became the standard test for determining worker status. However, the Borello test, which has been around since the 1980s, hasn’t gone away.
Companies that are based in California or work with independent contractors there need to know who the Borello test applies to, what factors it considers, and when to use it — otherwise, they risk the consequences of misclassifying workers.
In this post, we’ll cover everything you need to know about the Borello test.
This article is part of our guide on Assembly Bill 5 (AB5).
What is the Borello test?
Before AB5 was adopted and codified the ABC test, the Borello test was the standard method for classifying workers in California.
Also known as “The Right to Control Test,” California’s courts, Labor Commissioner, and Employment Development Department relied on the Borello test. The 11-factor test aims to classify workers based on the level of control a hiring company has over the contractor, as well as other factors, such as the worker’s ability to profit or loss and who pays for their tools.
Unlike the ABC test, in which contractors must satisfy all three factors to be considered self-employed, workers don’t need to satisfy all 11 factors of the Borello test.
- Does the worker have the sole right to control the manner and means of accomplishing the results desired of the work?
- Is the hiring entity required to give advance notice when they intend to terminate the relationship without cause?
- Is the worker who performs the service engaged in an occupation or business that is distinct from that which the employer does?
- Is the worker performing the work without the direct supervision of the employer?
- Is skill required in the particular occupation?
- Does the worker who performs the service supply his or her own supplies and tools to do the job?
- Does the worker performing the work have the right to hire and terminate others?
- Is the length of time for which the worker is to perform the services considered temporary and fixed, rather than indefinite?
- Is the method of payment based on job completion?
- Are the services performed by the worker separate from the regular business of the employer (i.e. the worker not doing jobs for clients of the employer, but rather doing work for the employer themselves)?
- Do the parties believe they are creating the relationship of an independent contractor with the hiring entity?
How was the Borello test created?
The Borello test was adopted as the standard method for classifying workers following the S.G. Borello & Sons, Inc. v. Department of Industrial Relations decision in 1989.
The case in question examined whether share farmers who harvested cucumbers for Borello & Sons, Inc. were independent contractors. The farmers signed contracts designating them as independent contractors, and certain characteristics of the work relationship supported this (i.e., there were no field supervisors). However, the California Supreme Court ultimately decided that Borello controlled many other aspects of the farmers’ work. Therefore, not providing them worker’s compensation was a violation of the state’s Workers Compensation law.
In the California Supreme Court’s decision, the court laid out the “Right to Control Test” to determine independent contractor status. The test focuses on understanding the degree to which the hiring company has a right to control the manner and means of performing the work.
The history of the Borello test
While the Borello test is still in use, same as the IRS 20 factor test, it is no longer the primary method by which contractors and companies determine independent contractor status.
In recent years, several major legislative updates have changed when the Borello test should be used.
The Dynamex decision
For example, after the 2018 Dynamex decision, the California Supreme Court decided the Borello test should only apply to non-wage order claims (i.e., claims related to violations of workers compensation, anti-discrimination, usiness expense reimbursements, wrongful termination, failure to pay overtime, waiting time penalties, etc.).
In 2020, the passage of AB5 codified the ABC test, and that became the primary system for determining worker classification. However, it didn’t replace the Borello test. AB5 exempted certain contractors from the ABC test. Instead, these workers used the Borello test. Some examples of exempt contractors include marketing professionals, human resources administrators, travel agents, graphic designers, grant writers, fine artists, licensed estheticians, etc.
AB2257 and prop 22
In September 2020, eight months after the enactment of AB5, California Governor Gavin Newsom passed an updated version of the law, called AB2257. Under the new law, exemptions from the ABC test were expanded further.
For example, recording artists, performing artists, landscape architects, translators, copy editors and illustrators, real estate appraisers, home inspectors, and several other categories of freelancers can retain their status as independent contractors. In those cases, the Borello test is used to assess the company’s right to control and determine the status of the worker.
In November 2020, California voters approved Prop 22, adding app-based drivers and food delivery in to the long list of exceptions. Needless to say, these exemptions are damaging the intent of the law to protect non-payroll workers.
Which workers are subject to the Borello test?
The following types of workers are exempt from the ABC test and subject only to the Borello test. However, they must have all required professional or occupational licenses.
- Physicians, surgeons, dentists, podiatrists, psychologists, veterinarians
- Insurance brokers, underwriters, premium auditors, risk managers
- Architects, landscape architects, and engineers
- Private investigators
- Registered securities broker-dealers and investment advisers
- Direct sales salespeople (must not be paid by the hour and have written IC contracts)
- Manufactured housing salespersons
- Individuals engaged by an international exchange visitor program recognized by the U.S. Department of State
- Competition judges, including amateur umpires and referees
Workers that provide certain types of professional services may also be exempt from the ABC test and subject to the Borello test if they:
- Maintain a business location separate from the hiring firm (this could include their residence)
- Have a business license, in addition to any required professional licenses or permits
- Have the ability to set or negotiate their own rates for the services performed
- Are able to set their own hours
- Are customarily engaged in the same type of work under contract with another hiring firm, or offer the same type of services to other potential customers
- Customarily and regularly exercise discretion and independent judgment while performing services
Know when the Borello test applies
Understanding when to use the ABC test and when to use the Borello test is crucial to accurately classifying your workers and avoiding grueling misclassification audits and penalties. The key is knowing who is exempt from the ABC test, and how those exemption decisions are made.
California’s worker classification system changes often. By staying up-to-date, you’ll be better able to remain compliant and avoid major headaches down the road.