A licensed plumbing contractor operates as a genuinely independent business, has her own separate business license, advertises to the public, sets her own hours, and contracts with a general contractor to perform plumbing work on a single project under a written agreement specifying a fixed project price. Which legal framework may apply instead of the strict ABC test to evaluate this business-to-business relationship?
- AThe IRS 20-factor common law test exclusively
- BThe Borello multi-factor test under the statutory business-to-business exception
- CNo alternative test may ever apply; the ABC test is mandatory in all cases
- DThe federal FLSA economic realities test exclusively
Show answer & explanationAnswer & explanation
Correct answer: B. The Borello multi-factor test under the statutory business-to-business exception
California's Assembly Bill 5 (codified in Labor Code Section 2775 et seq.) provides a statutory business-to-business exception where, if a genuine independent business meets a set of specified criteria (separate business location, own licenses, controls own work, negotiates own rates, etc.), the multi-factor Borello test may apply instead of the strict ABC test to determine independent contractor status.
Why the other options are wrong
- A. The IRS test relates to federal tax classification, not California's ABC test exceptions.
- C. California law explicitly provides statutory exceptions where the ABC test does not apply.
- D. The federal FLSA test is not the controlling standard for California state wage and hour classification.
Business-to-Business Exception to ABC Test
California law allows certain genuine business-to-business contracting relationships meeting specific statutory criteria to be evaluated under the Borello test instead of the strict ABC test.
- Requires the contractor to operate as a separate, genuine business
- Contractor must have own business license, tools, and set own rates
- Falls back to the multi-factor Borello test if criteria are met
- Codified under Labor Code Section 2775 et seq. (AB 5)
Memory trick: Two real businesses dealing together can skip the strict ABC test.