Sharing Economy

Federal Judge Refuses To Grant Injunction Against California's Gig Economy Law, But Acknowledges 'Likelihood of Irreparable Harm'

Assembly Bill 5 forces many companies to reclassify contractors as employees.


A federal judge this week declined to grant Uber and Postmates an injunction against Assembly Bill 5 (A.B. 5), the gig-economy law in California that is forcing many companies to reclassify their contractors as employees. 

Judge Dolly M. Gee of the U.S. District Court for the Central District of California wrote that "the balance of equities and the public interest" favor enforcing the law, although she conceded that the two companies will likely experience some "irreparable harm" as a result. 

Many gig-economy companies and independent contractors are suffering across the state of California in the wake of A.B. 5 taking effect on January 1.

Filed in response to the ruling in Dynamex Operations West, Inc. v. Superior Court of Los Angeles, A.B. 5 imposes a much broader standard in determining if workers are contractors or employees. To pass the "ABC test," a contractor must A) control his or her own workload, B) perform tasks that are not crucial to the company's main scope of operations, and C) be "customarily engaged" in the work.

The legislation sent a slew of industries into disarray at the start of the year. Employees in California are entitled to benefits not offered to contractors, such as a minimum wage, health insurance, paid time off, and reimbursement for expenses. Experts estimate that ridesharing companies should expect to see a 20-30 percent increase in labor costs.

As a result, those companies have prepared to make major changes that will hurt the very people the law was supposed to help. Workers will first lose the flexibility that has come to define gig-economy work, as businesses have said they will need to start scheduling workers in tight shifts. And a multitude of operators will be laid off entirely. Under a 40-hour workweek, Lyft expects to kick 300,673 drivers to the curb if it experiences the more modest 20 percent increase in expenses, according to a Beacon Economics LLC study commissioned by the ridesharing company. 

As it currently stands, gig-economy businesses present some of the lowest barriers to entry, providing opportunities to lower-skilled, vulnerable populations. Lyft, for instance, merely requires that would-be drivers meet regional age standards, pass a background check, and have insurance, a license, and a decent four-door vehicle. The new regulations, however, would render ridesharing a more exclusive profession, forcing out workers who may otherwise struggle to find a well-paying gig. (As I've previously reported, 90 percent of app-based drivers in Manhattan are immigrants.)

Uber and Postmates said they will consider appealing the decision. (The rejected injunction has no bearing on the companies' lawsuit against the state of California, which is still moving forward.) In a statement, Uber characterized A.B. 5 as "biased and overtly political," a reference to the many exemptions granted to various industries under the legislation.

The law's first iteration excluded doctors, hairstylists, real estate agents, lawyers, accountants, insurance agents, dentists, and others from having to comply. And the list keeps growing. Assemblywoman Lorena Gonzalez (D–San Diego), the architect of A.B. 5, announced last week she would move to consider exempting freelance content creators and photographers, who are currently prohibited from completing more than 35 individual assignments for a single company without being hired as an employee. 

Journalists, translators, transcribers, digital marketers, and others vigorously pushed back against that restriction, with many claiming that they had lost thousands of dollars in contracts and that the legislation had decimated their livelihoods. The Pacific Legal Foundation also filed a lawsuit on behalf of the American Society of Journalists and Authors and the National Press Photographers Association, alleging First Amendment violations.

"Companies can simply blacklist California writers and work with writers in other states, and that's exactly what's happening," Alisha Grauso, an entertainment writer and the co-leader of California Freelance Writers United (CAFWU), told Reason in December. "I don't blame them."

Perhaps most notoriously, Vox Media, who originally called A.B. 5 "a victory for workers everywhere," severed ties with around 200 of its California freelancers who wrote for its sports site, SB Nation. They instead replaced those freelance positions with 20 part- and full-time positions.  

The law's 35-piece-per-year publication cap "makes it impossible for us to continue with our current California team site," wrote SB Nation's John Ness in a statement.

A.B. 5 and its freelancer ramifications briefly united progressives and more fiscally conservative types, and Gonzalez became somewhat well-known for her combative Twitter exchanges with those negatively impacted by the legislation. "[Freelancers] shouldn't fucking have to [work 2-3 jobs]," the assemblywoman told a detractor in December. "And until you or anyone else that wants to bitch about A.B. 5 puts out cognizant policy proposals to curb this chaos, you can keep your criticism anonymous."

But in other exchanges, Gonzalez iterated a desire to hear out her constituents and get the law right. "Based on dozens of meetings with freelance journalists & photographers," she tweeted last week, "we have submitted language to legislative counsel that we hope to have available next week to put into AB1850 which will cut out the 35 submission cap & instead more clearly define freelancer journalism."

The moment was a major victory for a subset of workers whose livelihoods depend on their ability to set their own schedules and spread their work across many different businesses. In another similarly encouraging turn, a Los Angeles Superior Court judge ruled last month that truckers must also be exempt from the legislation, writing that A.B. 5 "clearly run[s] afoul" of federal law pertaining to interstate commerce.

Uber and Postmates—along with the other gig-economy titans like Lyft and DoorDash—haven't yet been so lucky, though the law does brush up against separate decisions filed by the Department of Labor and the National Labor Relations Board. Both agencies ruled that gig-economy workers are indeed contractors, noting in particular that those workers may log on whenever they please and contract for competing companies. It is not uncommon, for example, to drive for both Uber and Lyft.

Should the courts not grant them a reprieve, those businesses are hoping that a November ballot measure may exempt them from the legislation. Though A.B. 5 did not exclusively zero in on the gig-economy behemoths, they were arguably the primary target, and a successful effort to exclude them from the law would be a large step toward rendering it moot.