New California law redefines who gets employment benefits. The lawsuits are just starting
A new law that dictates which California workers must receive full employment benefits takes effect Jan. 1, but the latest battle over Assembly Bill 5 is playing out in courts and could take years to resolve.
On one side are groups seeking to roll back the law, such as truck drivers who are already suing to block it, arguing it will interfere with their ability to earn a living as independent contractors.
On the other side are labor advocates like bill author Assemblywoman Lorena Gonzalez, who wrote the law to provide more financial security for gig economy workers and others. The law empowers California’s attorney general and city attorneys in the state’s four biggest cities to force companies to follow it.
Gonzalez last month publicly encouraged city attorneys to file injunctions against businesses, arguing legal action from local governments would more effectively force compliance than claims brought by employees.
“Attorneys have sued, settled, walked away & never demanded proper classification of the workers. It’s what Uber told me they’d continue to do under #AB5,” Gonzalez, D-San Diego Democrat wrote on Twitter, referencing Uber’s assertion that it does not have to change its worker classification practices to follow the law. “That’s why we ask the 4 big city City Attorneys offices to file for injunctive relief on 1/1/20.”
It’s unclear at this point if city attorneys will use the powers the law gives them.
San Francisco City Attorney Dennis Herrera’s office declined to comment on whether he’s planning to file for any injunctions, but released a statement indicating support for that part of the law.
“Ensuring workers are treated fairly is one of the trademarks of this office. We have a track record of taking on such cases, whether it’s making sure workers receive proper health care or are paid what they’ve earned,” he said in a written statement. “It makes sense to have effective enforcement. You do that by providing local prosecutors with the legal tools to do the job.”
San Diego City Attorney Mara Elliott’s office also declined to comment, but pointed to a previous lawsuit she filed under the existing Supreme Court precedent alleging grocery delivery service Instacart misclassifies its shoppers as independent contractors. That case is pending in court.
City attorneys offices in the other two qualifying California cities — Los Angeles and San Jose — did not respond to requests for comment.
Who’s an employee?
The new law codifies a 2018 California Supreme Court decision that set new rules for when a worker must be classified as an employee and provided benefits instead of an independent contractor.
Although workers already had the right to sue over misclassification under the Supreme Court decision, there will likely still be an uptick in those types of lawsuits when AB 5 takes effect, said Bonnie Glatzer, an employment attorney with law firm Nixon Peabody.
That’s because publicity surrounding the new law will make more workers aware of their rights, she said.
In theory, a city filing for an injunction could be a quicker process than a traditional class-action lawsuit by employees, Glatzer said, but getting an injunction against a company like Uber would still take time.
“That’s not likely to be a quick process, especially because Uber has a lot of lawyers and tends to be litigious,” she said. “You get a final decision eventually, but if you’re a company that is ready to fight, has the resources to fight, it could drag on for years.”
Uber declined to comment for this story, but its top lawyer Tony West has said the company doesn’t plan to make changes to comply with the law and instead argues it already correctly classifies its workers as independent contractors.
In the meantime, many employers are already taking steps to comply with the law, said Orly Lobel, a law professor at University of San Diego. Some companies are converting workers from independent contractors to employees entitled to benefits like overtime pay and sick leave. Others are changing their practices to ensure their workers can legally be classified as independent contractors.
‘What is integral to the business?’
For example, Lobel said she’s seeing many yoga studios convert instructors into part-time employees after previously employing them as independent contractors.
The new rules require companies to classify workers as employees if they do work that is central to a company’s business. That’s the most significant change for many industries, she said.
“That’s where the fights will be: What is integral to the business?” Lobel said. “That’s why Uber and other transportation apps that didn’t get an exemption are worried.”
Dozens of industries were granted exemptions from the new rules, including lawyers, doctors and real estate agents. But lawmakers have said they will consider additional exemptions next year, including for musicians.
It’s unclear what will happen for other types of workers, such as newspaper delivery people. Lawmakers granted newspaper companies a temporary reprieve that will allow publishers to continue classifying those workers as contractors, but only for one year.
Lobel said she understands the concerns many industries have about the new law, but said it will take time to see the effects of the new rules as cases wend their way through court and as lawmakers make changes.
“I don’t think the story is over with just passing AB 5,” she said, adding that she hopes regulators will allow additional flexibility for professions that need it. “I don’t think we have to have this tunnel vision of thinking that employee status is always the best and most protective status... It’s a more nuanced conversation.”
Meanwhile, a coalition of gig economy companies including Uber, Lyft and Doordash are pushing a ballot measure that would allow them to continue classifying their drivers as independent contractors while providing them some new rights. Opponents including Gonzalez have argued against the proposal, arguing the worker protections it promises are weak.
This story was originally published December 9, 2019 at 5:00 AM with the headline "New California law redefines who gets employment benefits. The lawsuits are just starting."