AB-5’s Newest Chapters: Uber and Lyft Take a Hit, While Dozens of Other Gig Professions Score a Big Win

Judge Hits Uber and Lyft with Preliminary Injunction
The AB-5 saga continues, with new chapters written in the courtroom and legislature—and amidst a nationwide pandemic. In early August, San Francisco Superior Court Judge Ethan Schulman granted a preliminary injunction in an action brought against app giants Uber and Lyft by California Attorney General Xavier Becerra (and the cities of Los Angeles, San Diego, and San Francisco) seeking to enforce AB-5, the controversial California law that codifies the judicially-created “ABC Test” for worker classification. Finding that the government has an “overwhelming likelihood” of proving that the app companies are violating the new law, the order directs Uber and Lyft to reclassify their California-based drivers as employees (not independent contractors) and provide all employee benefits required under state labor, insurance, and wage laws, including minimum wage, overtime, sick leave, and disability and unemployment insurance.

Perhaps the most significant hurdle for Uber and Lyft (like many industries impacted by the ABC Test) is Prong B. Under it, to qualify as an independent contractor, a worker must perform work that is outside the company’s usual business.  In the San Francisco Superior Court, Uber and Lyft argued that their drivers qualify as contractors, not employees, because app companies are “multi-sided platforms,” not just transportation companies.  Judge Schulman rejected that argument, finding it “flatly inconsistent with the statutory provisions that govern their businesses as transportation network companies,” and divorced from “economic reality and common sense.”  Drivers, he found, are “central, not tangential, to Uber and Lyft’s entire ride-hailing business.”  While unpersuaded by the app companies’ theory, the judge had “no illusion” about the economic impact of his order: “There can be no question that in order for Defendants to comply with A.B. 5,” he wrote, “they will have to change the nature of their business practices in significant ways, such as by hiring human resources staff to hire and manage their driver workforces.”

The Fight Back: Appeal and Separate Ballot Initiative
In the days after Judge Schulman’s order, Uber and Lyft announced plans to temporarily cease California operations. Crisis was averted (for now) when, on August 20, the California Court of Appeal stayed the preliminary injunction pending resolution of their consolidated appeals.

Even as they secured relief from an overnight business model overhaul, Uber and Lyft kept their feet on the gas on a second part of their AB-5 fight: a ballot initiative to exempt drivers and delivery workers. In recent months, Uber and Lyft, with Door Dash and other gig companies, have put more than $100 million into Proposition 22, a ballot measure to keep gig drivers classified as independent contractors in exchange for certain worker benefits, including guaranteed earnings (120% of the minimum wage); expense reimbursement (30 cents/mile); healthcare subsidies; insurance for on-job injury, auto accident, and liability; and discrimination/ harassment protection.

So, what’s next?  The app companies’ appeals will proceed, with their consent, under expedited procedures. Opening briefs were filed September 4. Each company was also required to submit a sworn statement from their CEO confirming they have implementation plans by which they would comply with the preliminary injunction within 30 days if it is affirmed and Prop 22 fails. Oral argument is set for October 13, 2020. Californians vote on Prop 22 just three weeks later.

Other Gig Professions Win Exemptions with “Cleanup” AB-5 Legislation
Separately, progress has been made in an AB-5 subplot involving a host of other gig workers.  On August 31, Californian legislators approved AB-2257 (by an overwhelming 60-2 vote), expanding exemptions to a swath of workers previously subject to AB-5: (1) content contributors, editors, artists, translators, cartographers, producers, and newspaper cartoonists; (2) musicians with single-engagement live performances and recording/composition creators, marketers, and promoters; and (3) home inspectors, appraisers, and salespersons. There’s more: accountants, animal services, competition judges, foresters, illusionists, landscape architects, pool cleaners, psychologists, puppeteers, and youth sports coaches all get exemptions too.  And AB-2257 eliminates AB 5’s oft-criticized 35 assignment-per-year limit for freelance writers, photographers, and illustrators.

The Bill, characterized as “cleanup” legislation, was written by AB-5’s lead author, Lorena Gonzalez.  It has garnered unsurprising support from those industry groups whose lobbying efforts have paid off with applicable exemptions. Opponents, including industries who remain affected by AB-5, argue that the Bill doesn’t go far enough, “picking winners and losers in the independent contractor world” (as one legislator put it) and leaving many gig employees at risk of losing flexible work, particularly as the COVID-19 pandemic has led to rising unemployment.

California Governor Gavin Newsom is expected to sign the Bill into law.  Crafted as “urgency legislation,” it would take effect as soon as it is signed.  Still, questions will remain for many industries and individual gig workers uncovered by any new exemption.

We are monitoring AB-5 as it develops in California, and as the ABC Test fight wages in state houses and courtrooms across the country.  The Ansa Assuncao LLP team has decades of collective experience representing transportation industry clients nationwide, including matters involving independent owner-operators.  We stand ready to assist you in this ever-evolving legal landscape.

Heather L. Williams is a Partner in our Maryland office.