Perspective: California’s AB 5 Threatens Future of ‘Gig’ Economy
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California’s effort to reshape the “gig” economy hit a significant roadblock earlier this month when a federal court issued a temporary injunction prohibiting the application of the state’s new rules to truck drivers, citing a conflict with federal law. The roadblock is by no means fatal, but it’s not insignificant — not when there are so many lawsuits left to be decided.
Last year, California passed Assembly Bill 5, which went into effect on Jan. 1. The new law, widely known as AB 5, creates a strict test for determining whether an individual who provides services to a company is an independent contractor or an employee. The law treats ride-hailing drivers, computer coders, freelance writers and other gig workers as if they are all being exploited by the businesses that pay them.
If classified as an employee under AB 5, the individual is entitled to the full protections of the Golden State’s employment laws. The classification, moreover, is mandatory. An individual who provides a service for money — say, writing a column — cannot opt out even if he or she prefers independence. Critics have been predicting disaster if the law is implemented.
As it relates to trucking, Judge Roger Benitez of the Southern District Court of California on Jan. 13 extended a temporary restraining order against the implementation of the trucking component of the bill.
This isn’t the only legal challenge AB 5 is facing. Uber and Postmates also have sued to stop enforcement of the law, claiming among other things that it’s unconstitutional. Lawsuits have been filed by freelance journalists. And more are likely on the way. Meantime, companies are bracing for an expected flood of claims by California residents seeking to be reclassified as employees rather than contractors.
Many businesses are taking preemptive action. Vox Media, which supported AB 5, has told some 200 contributors to its California sports blogs that they will lose their regular writing gigs.
All of which brings us to the New Year’s Eve decision by a federal district court in California Trucking Association v. Becerra. The trucking industry is the subject of multiple interlocking federal regulatory regimes, and California should have known better than to claim control over it. Under the U.S. Constitution, whenever state and federal law clash, federal law wins.
The problem, the court explained, is that “AB 5 effectively mandates that motor carriers treat owner-operators as employees,” rather than the independent contractors that they are under relevant federal statutes. To allow enforcement, the court concluded, would constitute irreparable harm. And although the injunction is only preliminary — that is, issued in advance of hearing all the evidence — it’s hard to imagine that the state will prevail in the unlikely event that the case ever comes to trial.
The other lawsuits are tougher to evaluate. For example, a principal claim made by Uber and Postmates is that AB 5’s many exemptions make the law “irrational” and thus a violation of equal protection. And the list of exclusions is indeed a crazy quilt: commercial fishermen and beauticians, real estate agents and doctors, accountants and barbers.
And then there are lawyers. Big law firms for years have hired freelance attorneys as independent contractors to work on litigation matters without becoming employees. One might think that AB 5 would require the freelancers to be reclassified. But one would be wrong, because the same lawyers who will argue over which entities the law should cover naturally took care to secure an exemption for themselves.
In a nice bit of irony, even auto repossession agencies are excluded. Thus we can imagine the scene: If one of those formerly independent Uber drivers or truckers should miss a couple of payments, the guy who comes to tow the vehicle away remains not an employee but a contractor.
A fantastic mess to be sure — but I’m skeptical that a mess even this fantastic raises serious constitutional questions. As a formal matter, the Supreme Court has said many times that a statute must have a rational basis. But that’s usually been part of the argument for upholding a law. The claim that a law is unconstitutional because of its irrationality is one that courts rarely find persuasive.
Still, a statute can be perfectly constitutional and nevertheless remain a dreadful idea. AB 5 falls within that category. According to the bill’s principal sponsor, the goal is to protect the “more than a million Californians” who “have been misclassified by employers looking to cut costs at the expense of workers.” But it’s hard to know which workers are misclassified unless we know for sure what workers want. There will always be some potential hires who will prefer the flexibility that comes with being independent contractors. Even if some gig workers are subjected to exploitation, it’s an awfully blunt solution to take away from everyone else the freedom to choose.
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