California is again making waves in the employment community with its new freelance law which took effect on January 1, 2020. The law, Assembly Bill 5 (“AB 5”), imposes several requirements on employers who hire freelancer workers. While AB 5 has many supporters, including gig economy workers and Democratic lawmakers, it also has detractors including Uber, Lyft, and — somewhat surprisingly — some of the people the law is designed to protect. Although the true effects this law will have are unclear, AB 5 demonstrates how states are grappling with protecting the rights of independent contractors in an ever evolving and expanding “gig economy.”
AB 5 creates a rebuttable presumption that a person is an employee rather than an independent contractor and places the burden on the employer to prove that a worker is an independent contractor. The employer must do this by satisfying a three-part test. First, the employer must prove that the person “is free from the control and direction” usually associated with employment. Second, the Employer must show that the “person performs work that is outside the usual course of the hiring entity’s business.” Third, the Employer must demonstrate that the person “is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.” This high standard will likely result in the reclassification of many independent contactors as employees. Such workers would, as a result, become eligible for benefits and protections including, among other things, the minimum wage protection and unemployment insurance.
Companies opposed to the legislation, including Uber and Lyft, are committed to fighting and overturning this legislation. Those companies, which rely on independent contractors, see this law as a mortal threat to their businesses and say it will cause them to lay off thousands of drivers. According to the New York Times, some companies pledged $90 million in support of a ballot initiative to exempt themselves from the legislation. Uber and Postmates even filed for an injunction on December 30, 2019 to prevent the law from coming into effect. Some drivers for the ride sharing companies opposed the legislation as well, noting that it would decrease the flexibility of their driving schedules. Other professional organizations, including the National Press Photographers Association, filed suit against California arguing that the legislation is unconstitutional. The legislation, on the other hand, is the result of concerns about worker exploitation through the independent contactor model.