About 36 hours before it was intended to take effect, transportation network company Uber filed its lawsuit against the State of California in U.S. District Court in Los Angeles in its efforts to block Assembly Bill 5 (AB 5) from taking effect at midnight of January 1, 2020. Food delivery service Postmates also stepped into the arena.
The lawsuit is primarily based on grounds of equal protection under the law. It alleges that gig workers and companies that they work with in the on-demand economy are being unfairly targeted by the state while other companies are exempted from the law with no rational basis. The lawsuit also alleges that AB 5 infringes on workers’ rights to decide how they make a living. It could also operate to void existing contracts. The move is not a total surprise as some workers’ compensation attorneys expected that Uber may put up a fight.
Uber and Postmates are seeking a temporary injunction which might turn into a permanent injunction sometime in the future. If upheld, AB 5 would require companies like Uber and Postmates to classify their drivers as employees as opposed to independent contractors. Such a shift would likely avail those people to benefits like workers’ compensation, unemployment insurance, minimum wage compensation, social security benefits, overtime pay and sick leave. Governor Gavin Newsom signed off on the legislation in September of 2019.
Shifting of the Burden
Uber and Postmates are now aligned with the California Trucking Association and two independent owner-operators who are also challenging AB 5. In 2018, the California Supreme Court abandoned what was known as the Borello test for determining whether a person was an employee of a company or an independent contractor. Borello relied on 11 factors. It replaced the Borello with what’s called the ABC test. California’s legislature then codified the ABC test which places the burden on businesses to prove that independent contractors who they work with aren’t actually misclassified employees.
The ABC Test
As per the California Supreme Court’s new test, if a worker associated with a company is to be considered to be an independent contractor, the company who hired him or her must prove the following:
- The worker is “free from the control and direction of the hiring entity in connection with the performance of the work.”
- The individual “performs work that is outside of the course of the hiring entity’s business.”
- The worker is “customarily engaged in an independently established trade, occupation or business.”
A company must meet all three of these standards. A failure to do so would classify it as an employer. When getting ready for an initial public offering in 2019, Uber disclosed that being required to reclassify drivers as employees could significantly impact its financial performance.
Uber and other business entities have pledged to commit $30 million each to put the AB 5 legislation on the ballot for November of 2020. To date, Uber continues to refuse to reclassify its drivers.