On Monday, Uber and food delivery service Postmates filed a lawsuit against the state of California over Assembly Bill 5 (AB5) that may require companies such as Uber to treat their drivers — at present classified as independent contractors — as employers, entitling them to benefits such as overtime pay and sick leave. AB5 was signed by California’s Governor Gavin Newsom in September.
The Bill, now a law, is set to go into effect from January 1, 2020 and will affect those individuals who are residents of the state of California and work within the state.
What is AB5?
The AB5 codified the “ABC” test meant for the classification of independent contractors and according to Holland and Knight expands the reach of the test to all wage and hour Labor Code violations along with unemployment insurance and workers’ compensation. The “ABC” test is for classifying independent contractors and was set forth in a 2018 ruling of the California Supreme Court. The test requires employers to prove that their workers are not employees, thereby abandoning the previously used “Borello” test.
Now, with Uber and Postmates filing lawsuits, the two will join the California Trucking Association (CTA) along with two independent owner-operated truck drivers that filed a lawsuit against the State of California to prevent the application of the “ABC” test to the trucking industry. After AB5 was passed, on November 12 CTA amended its lawsuit to add claims that challenge the AB5.
What is the ABC test?
Under the ABC test, for a worker to be considered an independent contractor, the hiring company needs to establish that the worker is “free from the control and direction of the hiring entity in connection with the performance of the work, the person performs work that is outside the usual course of the hiring entity’s business, and the person is customarily engaged in an independently established trade, occupation, or business”.
Furthermore, according to the Bill, the 2018 ruling cited the harm incurred by misclassified workers who lose “significant” workplace protections and the employers who are left disadvantaged since they have to compete with companies that misclassify their workers. The text of the Bill goes on to say that the misclassification of workers is a significant reason for the erosion of the middle class and the growing income inequality.
Even so, there are some occupations that have been exempt from the provisions of AB5. These occupations will continue to use the Borello test and include licensed insurance agents, certain licensed health care professionals, registered securities broker-dealers or investment advisers, direct sales salespersons, real estate licensees and commercial fishermen among others.
What is the position of companies such as Uber?
The CTA website says that once AB5 is effective, carriers, brokers and shippers will need to demonstrate that their business arrangements satisfy all three parts of the “ABC” test. Uber on the other hand maintains that their classification of drivers as independent is “proper”.
After AB5 was passed by the California Assembly in September, Uber’s Chief Legal Officer Tony West stated that Uber’s offer represented a “new progressive framework”. This framework included establishing a minimum earnings standard “that would provide stability for drivers while allowing them the flexibility to earn more, and work whenever, wherever and for whomever they choose”, extending benefits such as sick leave and injury protection to the drivers and “real sectoral bargaining”, which gives drivers the right to be a part of decisions that affect their livelihoods.
“We are not arguing for the status quo,” West said, adding: “Our proposal avoids the potential harm of forcing drivers to be employees, whether or not they want to—and the vast majority tell us they don’t want to be. And it would create legal certainty around the classification status of drivers. So we’re disappointed that we were not able to reach a compromise.”
He has added that AB5 will not automatically classify the Uber drivers to employees, “contrary to some of the rhetoric”. “AB5 does not provide drivers with benefits, nor does it give drivers the right to organize. In fact, the bill currently says nothing about rideshare drivers,” his statement said.
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