What Is California’s AB5 Law?

California’s Assembly Bill 5, also known as the AB5 law or “gig worker’s law,” went into effect on January 1, 2020, but who it affects and how it will affect them is still being discovered and litigated in the courts. The law was put in place to protect gig workers like those working for Uber and Lyft from being improperly labeled as independent contractors.

Employees receive many rights that contractors don’t, but they also are restricted in their flexibility. As such, the AB5 law is being challenged by both workers and businesses.

AB5 Law Overview

AB5 is modeled on a 2018 California Supreme Court ruling in a case known as the Dynamex case. That ruling states that all workers should be classified as employees unless the hiring body can prove they are contractors. This decision was intended to provide more rights to workers in the gig economy. Employees have many rights that an independent contractor doesn’t including minimum wage, breaks, and overtime.

Unsurprisingly, some of the biggest challenges coming out against AB5 are companies that rely on gig workers for their business, like Uber and Lyft; however, many workers from industries like independent trucking or freelance writing may also be impacted.

What Is the AB5 Law?

The law puts in place a three-pronged test called the ABC-test to determine if a worker can be labeled an independent contractor. The worker must meet each of the following requirements:

1. The worker is free to control and direct their own performance without the hirer’s interference
2. The worker performs duties and services outside of the hirer’s usual business practice
3. The worker regularly performs the same duties independently which they perform for the hirer

Specific industries are affected differently by each of these requirements. For instance, the independent trucking industry is threatened by the second requirement because most owner-operators perform the same jobs as trucking carrier companies.

What Does AB5 Mean for Independent Truckers?

If the state successfully argues that truckers should not be covered by AB5 exemptions, then independent operation could become difficult for independent truckers in California. According to ATBS, most owner-operators perform the same sorts of duties as carrier companies.

This means that they would fail the second prong of the ABC-test. As such, independent truckers would need to be reclassified as employees under AB5. If that happens, truckers could face significant reductions in the flexibility of their work. Consumers may see higher prices and reduced quality of service, according to ATBS.

However, within weeks of the law coming into effect, a U.S. Southern District Court granted a preliminary injunction that blocks officials from enforcing AB5 against truckers. In November, the California Trucking Association (CTA) filed an AB5 lawsuit against the state regarding allegations that the  AB5 law comes into conflict with federal law. Specifically, the CTA contends that AB5 violates the Federal Motor Carrier Safety Act and the Federal Aviation Administration Authorization Act (FAAAA) of 1994.

The FAAAA restricts state laws from interfering with the “prices, routes or services of motor carriers,” according to the state Attorney General’s Office as reported by Freight Waves. The CTA claims that AB5 violates this restriction. However, state officials argue that there is a legal precedent for “background labor regulation” not being preempted by the FAAAA. The state is asking for an end to the preliminary injunction on motor carriers based on this argument.

“The sorts of laws that Congress considered when enacting the FAAAA included barriers to entry, tariffs, price regulations, and laws governing the types of commodities that a carrier could transport. Congress did not intend to preempt generally applicable state transportation, safety, welfare or business rules that do not otherwise regulate prices, routes, or services,” a brief filed by the state on this issue reads.

What are the AB5 Exemptions?

Some workers in California are covered by AB5 exemptions, but this doesn’t mean that hirers have free reign to label any of them as independent contractors.

Rather, if a group is exempt from AB5, then workers in that group generally must pass the Borello test before they can be classified as independent contractors. The Borello test is the test that was used prior to the ABC-test and involves considering certain factors rather than meeting strict requirements. However, there are also industries that don’t require workers to meet either test.

AB5 exemptions for workers who still need to pass the Borello test include the following professions:

• Lawyer
• Insurance broker
• Architect
• Engineer
• Private investigator
• Physician, dentist, psychologist, podiatrist, surgeon, veterinarian
• Accountant
• Registered securities broker-dealer
• Investment advisor
• Direct salesperson (not paid hourly)

Other professional workers may be covered by AB5 exemptions if they can pass the Borello test and satisfy other requirements regarding their work. For example, business-to-business and construction contractors are exempt from the ABC test but must pass the Borello test and meet other requirements.

The same is true of real estate licensees and as well as workers providing professional services. For an example of the sorts of requirements workers must meet to be independent contractors, the following six requirements apply to workers of this last kind.

1. They must maintain a business location which is separate from the hiring company
2. They must have a business license as well as any professional licenses or permits required
3. They must be able to set their own rate-of-pay for services
4. They must be able to set their own working hours
5. They must either perform the same work for multiple hiring firms or must offer their services to other potential customers
6. They must regularly use their own discretion and judgment when performing their work

Workers covered by this AB5 exemption include travel agents, marketers, creative professionals, graphic designers, and others.

Who is Protected by the New AB5 Law?

The AB5 law is intended to protect gig workers, but it applies to the majority of workers in California. Some companies are structured to use gig workers without providing them with the same rights provided to employees. These rights include expense reimbursement, minimum wage, employee benefits, rest breaks, overtime, and others. However, some workers argue that the AB5 law actually hurts rather than helping them.

“Certain people are very attracted to this type of work and flexibility and will most likely drop out, as they may not like fixed schedules or other rules and requirements,” a legal expert told Investopedia.

What is AB2257 and How Does it Affect AB5?

AB2257 is a new bill approved by California legislators to help provide more exemptions to workers who have been struggling under the AB5 law. Currently, AB2257 awaits the governor’s signature.

Among the professionals who would be exempt from AB5 if AB2257 becomes law are:

• Translators
• Freelance writers
• Editors
• Advisors
• Content contributors
• Fine artists
• Narrators
• Copy Editors
• Producers
• Cartographers
• Illustrators
• Newspaper cartoonists
• Musicians who have single-engagement live performances
• Workers who work with sound recordings or musical compositions
• Insurance inspectors
• Real estate appraisers
• Real estate inspectors
• Salespeople of manufactured housing
• Youth sports coaches
• Competition judges
• People assigned through an international exchange program
• Consulting services
• Landscape architects
• Professional foresters
• Animal services

Assembly Member Lorena Gonzalez of San Diego authored AB 2257, and she was also the main lawmaker behind AB5.

Certain industry and professional organizations are in favor of AB2257 because it would allow their represented workers to be free of the AB5 restrictions.

Still, Uber and Lyft, the two main gig companies that AB5 was trying to rein in, are opposed to AB2257. Neither Uber nor Lyft have complied with AB5.

Uber, Lyft, Instacart and DoorDash are among the companies supporting Prop 22, which provides fewer driver benefits. In November, California voters could decide to pass Prop 22, which would allow app-based drivers to remain independent contractors, but would guarantee them an earnings floor and a stipend to buy health insurance, plus a few other smaller benefits. [https://calmatters.org/explainers/california-november-2020-ballot-propositions-final-list/]

The app-based companies have paid more than $110 million to push the ballot measure to keep their drivers from becoming employees.

Who Can File an AB5 Lawsuit?

If you feel that the AB5 law will make it harder or impossible for you to perform your work or continue your business, you may be able to file an AB5 lawsuit against the state. An AB5 lawsuit may be able to win you an exemption or prohibit state officials from enforcing the AB5 law against you.

Join a Free Trucker Overtime Class Action Lawsuit Investigation

If you have worked as a contract truck driver and believe your carrier has failed to pay you minimum wage or overtime, or otherwise might not have honored a contract with you, you may qualify to file a truck driver lawsuit or class action lawsuit.

Learn More