Why SCOTUS’ refusal to review challenges to controversial labor legislation is a victory for workers
By Brian Kabateck
This summer, the U.S. Supreme Court declined to hear two separate challenges to California’s controversial state statute, Assembly Bill 5 (AB5).
On June 30, 2020, SCOTUS rejected a challenge brought by the California Truckers Association (CTA). Just a few days earlier, the court declined to take up a similar suit brought by the American Society of Journalists and Authors (ASJA) and the National Press Photographers Association (NPPA).
Passed in 2019 and effective as of January 2020, AB5 overhauled the way companies determine how to classify workers, making it much more difficult for businesses to treat workers as independent contractors rather than employees.
Both recent cases represented new chapters in a complex history of pushback against AB5—in and out of court—in the few short years, it has been in effect. Proposition 22, a ballot initiative sponsored by Uber, Lyft, Instacart, DoorDash, and Postmates (owned by Uber), was passed by voters in November 2020, exempting rideshare and food delivery drivers from being classified as employees.
The ASJA and NPPA suit, which argued that AB5 unconstitutionally violates free speech and the Equal Protection Clause, began in 2019 against the California Attorney General and sought to block AB5’s enforcement among journalists, photographers, and freelance writers. When the original trial court denied an injunction, the groups appealed to the Ninth Circuit Court. SCOTUS’ recent refusal to hear the case upholds the October 2021 decision by the Ninth Circuit that AB5 regulates economic activity, not speech.
The petition brought by the California Truckers Association claimed that AB5 is preempted by the Federal Aviation Administration Authorization Act of 1994 (FAAAA), which prevent states from enacting or enforcing “a law, regulation, or other provision having the force and effect of law related to a price, route, or service of any motor carrier…” In this case, SCOTUS’ denial preserves an April 2021 ruling by the Ninth Circuit that upheld AB5 by reversing a December 31, 2019 decision by a federal district judge that enjoined the state from enforcing AB5 against motor carriers as owner-operators on the basis that it was “likely preempted by the FAAAA.”
Despite the uproar in specific gig economy sectors, AB5 is an essential step in the advancement of the rights of workers.
According to the Economic Policy Institute, “The misclassification of workers as independent contractors is a serious and persistent problem nationwide. A 2000 study commissioned by the U.S. Department of Labor found that between 10% and 30% of audited employers misclassified workers and that up to 95% of workers who claimed they were misclassified as independent contractors were reclassified as employees following review.”
This is a crucial distinction. Employees work directly for their employer and are under their control. Independent contractors (IC)—who are typically self-employed, use their own materials, tools, and equipment, control their own hours, and may provide services to a client for only a limited time—are not entitled to most of the vital benefits and protections that employees receive. This includes minimum wage, overtime pay, paid family leave, workers’ compensation, and unemployment insurance, as well as safeguards against discrimination and sexual harassment.
But the problem doesn’t stop with workers being unfairly denied their rights—federal and state governments also lose out on revenue when companies misclassify workers. In doing so, businesses fail to pay their fair share of taxes for Social Security, Medicare, unemployment insurance, and workers’ compensation. In California, it’s estimated that this amounts to $7 billion annually.
AB5 codified a 2018 decision by the California Supreme Court (Dynamex v. Superior Court), which ruled that hiring entities should use a straightforward, three-factor “ABC” test (already used by many states for numerous employment-related purposes) to determine worker status under California’s wage orders. Under AB5, a worker must meet all three stringent criteria to qualify as an independent contractor:
- Worker is free from control and direction of the hiring entity, in contract and actual practice.
- Worker performs a service outside the usual course of the firm’s business. (For example, if a florist hires a plumber to fix a leaky sink, the plumber can be an IC, but if the florist hires someone to arrange flowers, that worker is an employee.)
- Worker is customarily engaged in an independently established trade, occupation, profession, or business of the exact nature as the service performed.
In all other cases, the worker is assumed to be an employee and must be provided with all accompanying protections and benefits.
There are exceptions. In early September 2020, shortly before Prop 22 passed, Governor Gavin Newsom signed a revised version of AB5 into law. Though it preserves the ABC test in most cases, AB 2257 expanded exemptions to a broader scope of independent workers providing professional services, including recording artists, performing artists, landscape architects, translators, copy editors and illustrators, real estate appraisers, and home inspectors. It also changed language in AB5 that had limited freelance journalists, writers, photographers, photojournalists, editors, and cartoonists to less than 35 content submissions per year per outlet.
AB5 provides vital protections for workers in California. If you’re confused about AB5 and have questions about how it impacts your livelihood, or if you believe your employer has misclassified you, the experienced plaintiff’s attorneys at Kabatek can help.