Assembly Bill 5: A Step Forward or a Step Back?

For gig workers in California, the talk of the town has been the newly enacted Assembly Bill 5, which went into effect on January 1, 2020.

We’re now a few months into the new year, and California is still reeling from the effects of the law, which was primarily intended to curb abuses in the gig economy—specifically in response to the rise of web platform-based companies like Uber, Lyft, and DoorDash.

Though an influx of lawsuits was to be expected following AB 5’s implementation, several of the cases have taken issue not with companies’ alleged misclassification practices, but with the law itself.

While Assembly Bill 5 is laser-focused on protecting drivers and dashers, many are arguing that the law may have been a step in the wrong direction for thousands of other gig workers who depend on the flexibility of their independent contractor status. Some have even gone so far as to suggest that AB 5 has granted greater protection to some workers at the expense of others’ jobs.

But before we discuss the details of AB 5’s opposition, let’s take a step back and talk about how we got here.

What Is Assembly Bill 5?

Assembly Bill 5—or AB 5—is a bill that was intended to “help reduce worker misclassification” by setting a stricter standard for who can be classified as an independent contractor as opposed to an employee.

The distinction is significant because independent contractors are considered exempt from certain protections afforded to employees under federal and state laws, including minimum and overtime wages, insurance, and workers’ compensation. And, some employers—particularly in the gig economy—have allegedly attempted to avoid providing higher wages and benefits to workers by misclassifying them as independent contractors when the nature of their jobs more closely resembles that of employees.

AB 5, according to lawmakers, sought to stifle this trend of misclassification by codifying a unanimous California Supreme Court decision in Dynamex Operations West, Inc. v. Superior Court, which established a stricter test to determine whether a worker is indeed a contractor.

Under the three-prong “ABC test,” certain employers can only classify their workers as independent contractors if they can establish that the worker:

Under Assembly Bill 5, workers in California—with numerous exceptions, including doctors, lawyers, commercial fishermen, real estate agents, and certain artists—are presumed to be employees unless their employer can meet the ABC test’s requirements.

How Was Assembly Bill 5 Received by the Gig Economy?

Not very well, as it turns out.

Unsurprisingly, web platform-based companies like Uber, Lyft, and DoorDash were vehemently opposed to the law, claiming the new requirements have unfairly targeted them and threatened their entire business model. We’ll talk more about that later.

Less expected, however, was the fierce opposition of workers whom the law was meant to protect. Journalists, artists, bloggers, actors, therapists, photographers, truckers and countless other workers have spoken out about how AB 5 has endangered their livelihood and, in many cases, left them out of work. As one freelancer put it, “AB5 is absolutely devastating not only to working professionals in situations like mine, but to the clients who rely on the goods and services we provide.”

Ironically, the statute seems to have lessened the divide between companies and workers by uniting them under a common cause: opposing AB 5. Now, parties on both sides of the employer/worker spectrum have filed lawsuits that claim the law is unfair and even unconstitutional. Let’s take a closer look.

Truckers: Assembly Bill 5 Is “Unlawful, Void and Unenforceable”

On November 12, 2019, the California Trucking Association filed a second amended complaint in a lawsuit that claims the Dynamex decision, and now AB 5, have placed motor carriers in “an impossible bind” that will force them to choose between continuing to contract with independent owner-operators and complying with the law.

The latter option, the case alleges, would change the entire trucking industry in California and threaten motor carriers’ ability to operate, considering the significant fluctuations in trucking needs over time. Forcing motor carriers who do business in California to maintain a fleet of employee truckers would be “difficult if not impossible,” especially for small motor carriers, the suit says.

On the other side of the road, the suit claims AB 5 would effectively cripple 70,000 owner-operator truck drivers who would be forced to give up their businesses after investing thousands of dollars in their own equipment. Many drivers have already made the decision to move out of state after being told by trucking companies that they will no longer contract with California owner-operators.

The suit stresses that although AB 5 contains “a series of exceptions,” no such exception has been made for the trucking industry despite the “irreparable harm” that the case claims the law’s implementation will cause.

According to the plaintiffs, AB 5 infringes on truckers’ right to facilitate interstate commerce without state government intervention—as protected under the U.S. Constitution and the Federal Aviation Administration Authorization Act of 1994—and is therefore “unlawful, void and unenforceable.”

On January 16, the judge overseeing the case agreed with this assessment and granted a preliminary injunction barring California officials from enforcing Assembly Bill 5 against motor carriers as the lawsuit proceeds.

Freelancers: Assembly Bill 5 Is “Irrational and Arbitrary”

Though only briefly mentioned in the CTA’s lawsuit, one common complaint among the lawsuits filed in opposition to AB 5 is its vast collection of seemingly arbitrary exceptions and limitations that the cases argue are unlawful under the U.S. Constitution.

According to a lawsuit filed by the American Society of Journalists and Authors, Inc. (ASJA) and the National Press Photographers Association (NPPA), AB 5 sets forth “unconstitutional content-based distinctions about who can freelance.” The two organizations point out that the law exempts without limitation certain contractors who provide “professional services”—specifically, marketers, human resources administrators, travel agents, graphic designers, grant writers, fine artists, IRS enrolled agents, payment processing agents, estheticians, electrologists, manicurists, barbers, and cosmetologists.

A subset of this eclectic group, however, is comprised of photographers, photojournalists, freelance writers, editors and newspaper cartoonists, who, unlike the other professions listed above, are specifically limited under the new law to 35 content submissions per client, per year.

The plaintiffs argue that exempting some professionals while imposing “irrational and arbitrary” limitations on others is unconstitutional—and poses a direct threat to the flexibility and freedom integral to freelancers’ livelihood.

“Losing the freedom to freelance would upend years-long careers of Plaintiffs’ members which are built on this freedom and flexibility,” the complaint reads, adding that many of the plaintiffs’ members have already lost freelancing work as a result of AB 5’s limitations.

Some journalists have observed that employers faced with the statute’s new restrictions are more likely to cut ties with California freelancers than to hire them all as employees—a side effect that, as previously noted, has already manifested in the trucking industry.

Uber, PostMates: Assembly Bill 5 Is “Nonsensical”

Harping on ASJA and NPPA’s allegations is a lawsuit filed by Uber, PostMates, and two individuals who work as “independent service providers.” This case even more harshly criticizes AB 5’s “laundry list of exemptions,” alleging the statute’s apparent targeting of certain professions is unconstitutional. The plaintiffs claim there is “no rhyme or reason” for the law’s “nonsensical” exemptions, which seem to inexplicably differentiate between workers who perform similar tasks.

“For example,” the complaint reads, “some types of workers are excluded (e.g., a delivery truck driver delivering milk) while others performing substantively identical work are not excluded (e.g., a delivery truck driver delivering juice).”

The lawsuit argues that AB 5 violates, among other laws, the Equal Protection clauses of the U.S. Constitution, which protect workers’ right to be treated the same as those who are similarly situated.

According to the case, Assembly Bill 5 has no “significant and legitimate public purpose,” but is rather a product of nothing but “irrational animus” toward platform-based companies such as Uber, Lyft, PostMates, and DoorDash on the part of the law’s sponsors.

The plaintiffs stress that while they support AB 5’s purported goal of reducing worker misclassification, this “vague and incoherent statute” is not the way to accomplish that objective.

The lawsuit sought an injunction barring state officials from enforcing AB 5, but the request was denied in early February.

If Not Assembly Bill 5, What Is the Solution?

Uber and PostMates hinted in their lawsuit that there must be a better solution than AB 5 to the apparent misclassification problem in the gig economy.

After the law was passed last fall, Uber, Lyft and DoorDash each put $30 million toward what they believe is the answer—a ballot initiative for November 2020 that seeks to exempt them from AB 5. The “Protect App-Based Drivers and Services Act” initiative, to which Instacart and PostMates have each contributed an additional $10 million, would grant drivers certain worker protections while allowing them to maintain their status as independent contractors. Among the initiative’s proposed protections are a minimum earnings guarantee (at least 120-percent of the minimum wage), reimbursement for business expenses such as gas and vehicle maintenance, a healthcare stipend, and insurance.

Critics of the initiative claim its sponsors have glossed over some hidden costs, such as waiting time and unpaid payroll taxes, that could cut down drivers’ hourly wages to about $5.64.

Nevertheless, the initiative has now gathered over one million signatures and is set to appear on the California ballot this coming November pending validity checks and the official submission of the signatures to local Registrar of Voters offices.

A Work in Progress

Uber and its cohorts are not the only ones to suggest alternate improvements to California labor law. The controversy surrounding Assembly Bill 5 has already led to the introduction of at least 34 additional bills related to the new law.

While some of the bills seek to add exemptions for workers in certain industries—such as small businesses, interpreters and translators, and musicians—others suggest more drastic changes, including a proposal to repeal the statute entirely.

Another piece of legislation proposes adding a third classification of workers to fit with the changing labor landscape. The new category—which is intended to facilitate independent work “for those who voluntarily choose it”—would guarantee basic rights and protections to workers in the gig economy who don’t fit neatly under the employee or contractor umbrellas.

AB 5’s author, Assemblywoman Lorena Gonzalez, has proposed her own amendment to the statute that essentially seeks to exempt still photographers, photojournalists, freelance writers, editors, and newspaper cartoonists, as long as the workers sign contracts that include “specified items” intended to protect their rights.

While Assembly Bill 5 may have faced harsh criticism, it’s clear from the actions taken in response to the law’s implementation that the controversial statute has led to progress in addressing worker misclassification, even if only to get the ball rolling.

As Assemblywoman Gonzalez stated in a Facebook post:

Was [AB 5] perfect? No. We said that as we were passing it last year. But, we needed to provide relief for companies that could be sued under Dynamex who shouldn’t have been, and clarify the law for employers and employees. . . I will keep working to make this law work for as many people as possible, but I hope people will take the time to understand why it’s so important.” 

Do you have thoughts, suggestions, arguments, or questions about Assembly Bill 5? We invite you to join the discussion in the comments section below, keeping in mind our comment policy.