Is the Gig Up? Lawsuit Challenges California’s New Worker Classification Law

Late last year, Uber and Postmates brought challenges to California’s recently passed AB5, the state’s wide-ranging new law that took effect January 1, 2020 and seeks to classify many independent contractors as employees of the companies with whom they work. The companies contend that AB5 impermissibly treats workers in the so-called “gig economy” (e.g., work derived from mobile software applications) differently from other similarly situated workers, such as construction industry truck drivers, in violation of the United States Constitution’s Due Process and Equal Protection clauses. Not mincing words, the companies characterize AB5 as a “thinly veiled attempt” to harm gig economy companies.

Whether thinly veiled or not, AB5 clearly targets the common gig economy practice of classifying workers as independent contractors, but it would be a mistake to assume that AB5 only applies to gig economy companies and their workers. Aside from certain specific carve outs, the test’s broad language applies to all California companies using independent contractors, potentially including even some franchisors.

AB5 uses the so-called “ABC test” and places the burden on alleged employers to prove that a worker is properly classified as an independent contractor by demonstrating that:

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

Uber and Postmates’ lawsuit, if successful, would invalidate AB5 and return the state to its previous, more lenient worker classification tests for all but wage-and-hour claims, which apply the ABC test.

Key Takeaways

With certain exceptions, AB5 applies to all working arrangements covered by its broad language, including traditional relationships like employer-employee and contractor-independent contractor as well as franchisor-franchisee relationships. Although the future of the law is uncertain, companies that may be covered by the law would do well to assess their classification practices to ensure compliance with AB5.