Just a few hours before they were subject to a court order forcing them to transform all of their drivers from independent contractors to employees, a California appeals court spared the nation’s two largest rideshare companies from having to immediately overhaul their fundamental business models. The court blocked a San Francisco judge’s order from taking effect while it heard the companies’ appeal, handing the gig economy giants a much-needed reprieve. But it comes at a cost – the appeal was fast-tracked and will be played out at groundbreaking speed, meaning that we will be closer to a final answer to this momentous question sooner rather than later.
A California state court judge just handed a potentially groundbreaking loss to gig economy companies across the state by granting an injunction forcing the two biggest ride-sharing drivers in the nation to classify their drivers as employees. A silver lining in the August 10 decision by San Francisco Superior Court Judge Ethan Schulman allows the companies 10 days before the injunction takes effect, permitting them time to appeal the ruling and perhaps to convince a higher court to put the decision on ice pending the appeal. Here are the five takeaways you need to know about today’s critical ruling.
In a budget deal finalized today and expected to be approved by state lawmakers in a matter of days, the California state legislature has reached an agreement that will see $17.5 million allocated toward enforcement of AB-5 in the 2020-2021 budget year. Unless the state law is radically revamped by voters through a November ballot measure, gig economy businesses can expect to be under the regulatory microscope by state enforcement officials for the foreseeable future. What can gig economy businesses expect given this development?
Not so long ago – 2019, to be exact – in a state not so far, far away – California – lawmakers passed the nation’s most controversial misclassification law to sweep as many independent contractors into employee status as possible. By now, most businesses recognize that AB-5 is the dreaded state statute that codified the “ABC test” across California and not the name of a new protocol droid. And most companies that have independent contractors in the state, especially gig economy companies, are quite familiar with how far-reaching the statute is. But is it so sweeping in nature that it would snare the Mandalorian, one of the Star Wars universe’s newest heroes, in its grasp? This May 4th, we’ll explore this question together.
After reviewing the 2,203 pieces of proposed legislation introduced in the California legislature by the February 21 deadline, it’s obvious that one issue will dominate debate in the 2020 session: the continued fallout from AB 5, the 2019 bill that codified and expanded the ABC test for determining independent contractor status. In fact, 34 separate pieces of proposed legislation that seek to modify or repeal AB 5, create new exemptions, or otherwise address the misclassification questions raised by the new law were introduced before the recent bill deadline. Let’s take a look at some of the key issues and the more prominent pieces of legislation.
A gig economy business just prevailed in the first round of a misclassification legal battle worth keeping your eye on. A state court judge in California rejected San Diego’s effort to use the state’s unfair competition law to force Instacart to immediately reclassify its gig workforce as employees, denying a request for a temporary restraining order (TRO) on February 4 and handing a victory to gig economy businesses across the state. But the battle is far from over. The city attorney’s office will continue to pursue litigation against Instacart using the state unfair competition statute. If the government wins, we could see other officials use this dangerous weapon against gig economy companies throughout California.
As readers of this blog know, three separate groups have filed lawsuits seeking to block or overturn California’s AB-5, the new law that raises the bar to make it very difficult for businesses to classify workers as independent contractors: truck drivers, freelancers, and gig economy companies. Although the truck drivers were successful in winning a temporary reprieve from the law, the freelancers’ group just received bad news that could also spell trouble for gig economy companies. A federal court denied their request for a temporary restraining order that would have blocked the law from taking effect against them, and given the similarities between their arguments and the arguments presented by gig economy businesses, we may have just received a sneak preview into how the court will rule on the case we care about the most.
A federal judge took a pause from his New Year’s Eve revelries to hand a big victory to California truckers, blocking the state’s new misclassification law from impacting them before the January 1 effective date arrived. While this maneuver doesn’t directly help gig economy companies in the state – who became subject to AB-5’s ABC test immediately upon the stroke of midnight – it could be a sign of good things to come.
The truck drivers were the first group to take aim at AB5 through a lawsuit, and the freelancers followed suit. Soon before the clock strikes midnight to ring in the new year, two giants of the gig economy fired their own shot. Uber and Postmates filed a federal lawsuit on December 30, hoping to overturn the controversial new law that will raise the bar to make it very difficult for the average gig economy company to classify their workers as independent contractors.
The clock is steadily ticking towards midnight on December 31, and once the illuminated cluster of grapes drops from the Temecula Civic Center clock tower (this is actually a thing) and rings in the new year in California, employers across the state – and across the country – will have to contend with California’s new independent contractor misclassification law which threatens to wreak havoc on the gig economy. Barring a legal miracle in the coming days, AB5 will officially become law, and the ABC test will be the law of the land. As businesses and contractors begin to grapple with this impending new reality, another group has filed suit in court hoping to upend the law before it takes effect.