California Assembly Bill 5, which should have been officially named state government’s War on Independent Contractors, recently took a well-deserved, though not full, thrashing in court. It’s a favorable ruling for workers who prefer independence over the structure of hired employment.
Passed and signed in 2019, AB5 virtually outlawed gig work in California by establishing a three-prong test for classifying workers as either hired employees or independent contractors. The way the test is structured, it is virtually impossible for any worker in this state to participate in the gig economy, as all three conditions set forth must be satisfied.
While the standards of “A” and “C” can be met in many cases, prong “B” is the wall that can’t be scaled. It says that in order for a worker to be classified as an independent contractor, he or she must perform “work that is outside the usual course of the hiring entity’s business.” Under that requirement, a hair salon that relies on freelancers could put a personal trainer to work. Or a writer. Or musicians and dancers. Even Uber and Lyft drivers could perform work for the salon. But it can’t make use of freelance hair stylists because they don’t “perform work outside the usual course of the hiring entity’s business.”
Clearly AB5 was passed and signed with the intention of killing gig work in California. But that’s only a means for reaching its main objective. The legislation was dreamed up to provide unions with a large pool of workers who could be organized after they became hired employees. On the deepest end of the pool were 300,000 (or maybe nearly 1.4 million) rideshare drivers who could be sacrificed to keep dying private-sector unions alive.
Those drivers and the companies that sell their rideshare apps to them are inextricably linked. One could not exist without the other. Both Uber and Lyft threatened to shut down their California services if drivers were to be classified as workers who had to be hired by the companies.
Eventually the rideshare companies were able to take the question to the voters through Proposition 22 on the 2020 ballot. It passed by a 59-41 margin. But that didn’t stop Alameda County Superior Court Judge Frank Roesch from ruling it unconstitutional in 2021 in a lawsuit filed by the Service Employees International Union.
Roesch, however, was partially corrected earlier this month for his Castellanos decision. The California 1st District Court of Appeal found that “Proposition 22 does not intrude on the Legislature’s workers compensation authority.” It concluded, however, that “the initiative’s definition of what constitutes an amendment violates separation of powers principles.” But, this unconstitutional provision could be “severed from the rest of the initiative.” By separating the remaining pieces, the three-judge panel left in place the initiative’s purpose to “protect the basic legal right of Californians to choose to work as independent contractors with rideshare and delivery network companies.”
It’s a reassuring outcome for drivers who want to retain their independence – which would be all but a few. But what about the many gig workers still under the boot of AB5 (including the 70,000 independent truckers who are vitally important to California’s economy), those not favored by the exemptions from the law granted to those who had the greatest political influence in Sacramento? Will they get relief from the court’s ruling?
“The short answer is that the Court of Appeal’s ruling in Castellanos has no direct impact on independent contractors not covered by Proposition 22,” says James Fessenden, a partner in Fisher Phillips’ San Diego law office.
“In other words, the ruling is limited to app-based ride share and delivery workers covered by Proposition 22. What Castellanos does indicate, however, is that California’s ballot initiative can be a viable check against an overreaching legislature. This method will likely be used with increasing frequency if the legislature does not evolve to fit the needs of businesses and workers in a modern, digital economy.”
While the ballot box can be an effective restraint on meddlesome lawmaking, there is still a question regarding the organizing of independent contractors who wish to be out from under AB5’s restrictions. Is it possible to build an alliance that would have the political clout and the financial resources to force the necessary changes? It would be an exhausting struggle in a state in which labor unions have nearly unrestrained influence over the lawmaking. But in the end, it could be worth the effort.
Kerry Jackson is a fellow with the Center for California Reform at the Pacific Research Institute.