Assembly Bill 5: California’s ‘Swiss Cheese’ Law
California voters pulled the teeth out of Assembly Bill 5, the labor classification legislation that outlawed gig work, when they approved Proposition 22 last month. The ballot measure didn’t strike AB5 from the books, but it is a statute in trouble, further weakened by a recent lawsuit. With every punch that lands on AB5, there’s a rising hope that workers will eventually have their freedom protected by government rather than violated by it.
Two weeks after voters sided with workers and passed Prop 22, the International Franchise Association, the Asian American Hotel Association, and a couple of independent franchise groups filed a lawsuit in the U.S. District Court for the Southern District of California. They are asking for protection from the injustices of AB5.
“Without exception,” the suit says, “all of the statutes that regulate franchising recognize that the relationship between a franchisor and its franchisees is a commercial relationship, not an employment relationship.”
AB5 doesn’t directly ban independent contract and freelance work. It prohibits companies from utilizing gig workers if the arrangement, which both parties voluntarily entered into, doesn’t meet a set of arbitrary standards. This “ABC test” was established by the California Supreme Court’s 2018 Dynamex ruling and codified into law by AB5.
Before the court’s ruling, a checklist, often referred to as the “Borello test,” was used to classify workers as either hired employees or independent contractors. It provides a reasonable degree of flexibility for determining worker classification.
The ABC test, however, is applied under the presumption that all workers are hired employees and sets a bar for freelance work that is nearly impossible to reach. The ABC test says to qualify as independent contractors, workers must be “free from the control and direction of the hiring entity in connection with the performance of the work”; the work they do must be “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 hiring entity.”
The new lawsuits, combined with the overwhelming voter approval of Proposition 22, exemptions granted in AB5 as it was being debated, and exemptions added this year in Assembly Bill 2257 have crippled the law. Add the possibility that the Ninth Circuit Court of Appeals could rule in favor of the California Trucking Association, which argues that federal interstate law regulating motor carriers overrides the state statute, and AB5 is looking even more shaky.
“As originally enacted, AB5 had so many exemptions that it was questionable whether its ABC test was being fairly applied to all Californians. With this year’s additional exemptions added by both the Legislature and the voters, it now has more holes than a piece of Swiss cheese and lacks a rational basis,” says Daniel M. Kolkey, a former appellate judge, governor’s counsel, and PRI board member.
“The courts should seriously consider whether it violates the equal protection clause.”
As the final version of the bill was being drafted, carve-outs were handed to a long list of professionals that included doctors, lawyers, architects, accountants, engineers, financiers, and several other highly skilled and well-paid workers. A number of providers of “professional services” were also exempted.
Exceptions were expanded under AB2257 to include an extensive roster of entertainment- and media-related workers. The law also broadened the schedule of occupations that fall under the professional services heading and added waivers for those whose livelihoods rely on business-to-business arrangements.
Still under the boot of AB5, though, are janitors, delivery and courier drivers, agricultural laborers, retail workers, loggers, in-home care providers, independent truckers and construction workers – wage earners who don’t have the political clout to lobby for exemptions. Why are they being treated differently? How can legislators make preferential choices for some Californians and not for others?
Both the U.S. and California constitutions guarantee equal protection under the law. But the exemption framework that’s grown out of AB5, AB2257, and Prop 22 clearly creates an atmosphere of unequal treatment. It’s hard to imagine in this environment that AB5 can last much longer.
Yet the fact that the legislation, a gift to the labor unions, which see app-based drivers as nothing more than an open vein of membership dues – and hold immense leverage over state politics and politicians – was passed and signed shows how far public affairs have regressed in California. Even as voters, through Proposition 16, said that preferences instituted by the state are not welcome, Sacramento will continue to give unions special treatment.