California Assembly Bill 5 (AB5) was signed into law on September 18, 2019. AB5 limited the ability of business to classify workers as independent contractors rather than as employees. It gave workers more protections, including worker’s compensation benefits, minimum wage laws and sick leave.
AB5 implemented a means for classification of employees known as the ABC Test. The ABC Test prohibits an employer from classifying a worker as an independent contractor unless the employer can establish that: (1) the hiring entity does not control or direct the workers in performing the work; (2) The work performed is outside the “usual course” of the hiring entity’s business; and (3) the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
There were mixed opinions regarding AB5. Rideshare drivers, couriers, taxi drivers and independent contractors who were active in the Gig economy were active supporters of AB5. Business owners were concerned about the economic impact AB5 would have on their labor costs and consumers were concerned about increased prices. Most interesting is that many contractors who valued their independence and did not wish to be categorized as an employee also opposed AB5. The biggest players who were opposed to AB5 were the app-based transportation and delivery companies – Uber, Lyft, Doordash, Instacart and Postmates.
In fact, Uber any Lyft refused to comply with AB5 and when ordered by a court to comply with the law, they threatened to cease operations in California. They then went on the offensive with Proposition 22 (Prop 22) and contributed over $205 million dollars into campaigns in support of Prop 22.
Prop 22 was a ballot initiative in November 2020. Prop 22, which passed with 59% of the vote, granted app-based transportation and delivery companies an exception to AB5 by classifying their drivers as “independent contractors” rather than “employees”, thereby exempting them from the mandated protections under AB5. Prop 22 has left rideshare drivers in a precarious position as a result of the Covid-19 pandemic.
However, even with the passage of Prop 22 things were not all rosy for Uber and the gang. The Service Employees International Union and several rideshare drivers filed suit in the California Supreme Court in January 2021 claiming that Prop 22 was unconstitutional in the matter entitled Castellanos v. State of California. The Supreme Court declined to hear the case and directed the plaintiffs to file the case with the appropriate lower court.
Following the Supreme Court’s direction, the plaintiffs in Castellanos filed their suit with the California Superior Court. On Friday August 2021, Superior Court Judge Frank Roesch ruled that Prop 22 illegally infringed on the California Legislature’s constitutional authority and plenary power to decide the coverage of the state’s workers’ compensation system. The Judge reasoned that employees are covered by worker’s compensation, while independent contractors are not, and that a Constitutional amendment – not an initiative statute – is the appropriate method to restrict the legislature’s power. In another words, the legislature has the power to determine what can and cannot be covered by workers’ compensation. Supporters of Prop 22 have indicated that they will appeal the decision and the measure will remain in effect pending the outcome of that ruling.
However, in the meantime, rideshare drivers and other gig workers will be left in a fog, with no real clarity on their workers’ compensation protections. Despite the ultimate outcome of the case, gig workers should contact a workers’ compensation attorney and take all necessary steps to file and preserve their claims pending the resolution of the Castellanos matter.
