Gig Workers Fight California’s New Contractor Law

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Gig Workers Fight California’s New Contractor Law

Updated: 1/17/20

California's controversial new independent-contractor test took effect Jan. 1, but several professional associations, on-demand businesses and workers are trying to halt its application to their respective industries.

In September, California lawmakers passed AB 5, which aims to provide workplace protections to more people by requiring businesses to reclassify many independent contractors as employees. Employees are entitled to a minimum wage, overtime pay, unemployment insurance and other benefits that are not generally provided to independent contractors.

Though AB 5 targets on-demand workers, such as Uber drivers, other independent contractors like freelance journalists and truck drivers are covered by the law. Representatives from each of these groups have filed lawsuits challenging AB 5's applicability to their professions.

The litigation isn't surprising, according to Katherine Catlos, an attorney with Kaufman Dolowich & Voluck in San Francisco. AB 5 attempts to simplify a very complex analysis, especially in the context of the gig economy, she said. The new law doesn't make all gig workers employees; rather, the analysis is worker-specific. 

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Assemblywoman Lorena Gonzalez, D-San Diego, recently introduced a bill, AB 1850, to amend the new law, but the specifics will be added later. "I was the first to say … that we would have to continue to work to clarify and specifically add language for creatives like musicians," she wrote on Twitter. "[T]his was not meant to stop legitimate business to business relationships or ban sole proprietors," she added.

The 'ABC' Test

AB 5 codifies a 2018 California Supreme Court decision that created a three-pronged test, called the "ABC test," to determine whether a worker should be classified as an employee or independent contractor.

The prior test was a multifactor analysis that primarily focused on who exerted control over the work. But under Dynamex Operations West v. Superior Court, all three of the following factors must be met for a worker to be properly classified as an independent contractor:

  • The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
  • The worker performs tasks that are outside of the usual course of the hiring entity's business.
  • The worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed for the hiring entity.

The Dynamex decision expanded the definition of "employee" under the California Wage Orders and placed the burden on companies to prove that independent contractors are properly classified. Though this decision only applied to wage orders, AB 5 extends the ABC test to all provisions of the California Labor Code and Unemployment Insurance Code unless another definition of "employee" is provided.

The second prong of the ABC test is the significant change that employers need to understand, said Todd Scherwin, an attorney with Fisher Phillips in Los Angeles. It used to be that if a worker was doing something germane to the business, it would be difficult to show that that worker was an independent contractor, but the business could still argue that other weighted factors leaned toward an independent-contractor relationship.

It will be much more difficult for hiring entities to show as an absolute factor for every independent contractor that the work performed is outside the usual course of the business, he noted.

Freelancers Still Covered

Two freelancer groups—the American Society of Journalists and Authors and the National Press Photographers Association—filed a lawsuit in federal court Dec. 17 claiming that the new law is unconstitutional because it limits free speech and the press. Freelance writers, photographers, editors and cartoonists are exempt from AB 5 only if they produce no more than 35 works per year for one client.

On Dec. 31, the day before AB 5's effective date, the freelancer groups filed an emergency motion asking a federal judge to temporarily block the new law from applying to their members while the legal battle ensues.

Judge Philip S. Gutierrez of the U.S. District Court for the Central District of California denied the motion, noting that the plaintiffs' waited three months after the bill was signed into law to file the lawsuit and waited until the day before the new law's effective date to ask for the temporary restraining order.

"Plaintiffs' delay belies their claim that there is an emergency," he said.

So, for now, the new law will apply to freelance journalists, but Gutierrez set a March 9 hearing to consider if a longer-term preliminary injunction is warranted.

Truck Drivers' Temporary Exemption Granted

The California Trucking Association also filed a lawsuit asserting that the new law hurts independent drivers who use their own vehicles and set their own schedules. Specifically, they argued that AB 5 is pre-empted by the Federal Aviation Administration Authorization Act (FAAAA), which prohibits states from enacting certain laws that impact interstate commerce.

Judge Roger Benitez of the U.S. District Court for the Southern District of California said a temporary restraining order is warranted in this case. "Plaintiffs have shown that AB 5's Prong B is likely pre-empted by the FAAAA because AB 5 effectively mandates that motor carriers treat owner-operators as employees, rather than as the independent contractors that they are," he said. Benitez subsequently decided a longer-term preliminary injunction is warranted.

Uber, Postmates Also Sue

Uber Technologies and courier service Postmates have joined two gig workers to challenge AB 5 as it applies to on-demand jobs. The plaintiffs seek to "protect their constitutional rights and defend their fundamental liberty to pursue their chosen work as independent service providers and technology companies in the on-demand economy," according to a Dec. 30 complaint filed in the U.S. District Court for the Central District of California.

"AB 5 is an irrational and unconstitutional statute designed to target and stifle workers and companies in the on-demand economy," the plaintiffs claim.

Additionally, Uber and other gig-economy companies are promoting a ballot initiative that would exempt them from reclassifying their drivers as employees.

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