AB5 Was Supposed to Bring Changes – Just Not the Ones It Has

AB5 Law in CaliforniaWhen Assembly Bill 5 (“AB5”) was signed by Governor Newsom in September 2019, labor and workers’ rights activists cheered. The new law would ensure protections for workers who passed the “ABC” test by forcing employers to classify those workers as employees rather than independent contractors. The Bill passed with overwhelming bipartisan support and took effect on January 1, 2020.

Its effects are already being felt – just, perhaps, not in the way legislators had intended.

A summary of AB5 and the “ABC” test

AB5 works in conjunction with Dynamex Operations West, Inc. v. Superior Court of Los Angeles, a California Supreme Court decision rendered in 2018. Both Dynamex and AB5 state that any worker who passes the “ABC” test must be classified as an employee, not an independent contractor. The ABC test determines “whether a worker meets three separate criteria to be considered an independent contractor:

  • The worker is free from the employer's control or direction in performing the work.
  • The work takes place outside the usual course of the business of the company and off the site of the business.
  • Customarily, the worker is engaged in an independent trade, occupation, profession, or business.”

If they fit the criteria, the workers would need to be reclassified.

There are exemptions to the new rule, however. Many of those exemptions apply to professionals who “set or negotiate their own rates, communicate directly with customers and make at least twice minimum wage,” such as doctors, travel agents, real estate agents, stock brokers, and more.

Some industries are going to court over AB5

Independent truck drivers are also exempt, for now. While some drivers are divided over whether they want to be classified as employees or contractors, many owner-operators – men and women who own their own trucks and set their own schedules – have sought refuge through the courts. The San Francisco Chronicle reported that the California Trucking Association was granted a preliminary injunction “to temporarily stop enforcement of AB5 against motor carriers;” the group has argued that AB and the Dynamex decision are in violation of a 1994 federal statute which prevents states from making any laws regarding service, routes, or prices for motor carrier hauling freight.

Uber and Postmates have also filed a lawsuit to challenge AB5, arguing that the new law is an “irrational and unconstitutional statute designed to target and stifle workers and companies in the on-demand economy." Per the complaint, their drivers do not pass the ABC test, and AB5’s exemptions “intentionally discriminate” between gig economy employees and traditional employees in terms of regulation.

In case the lawsuit fails, however, Uber has a back-up plan: “’Project Luigi,’ a companywide initiative tasked with changing Uber’s app for California drivers…. The initiative sought to revamp some inherent aspects of driving for Uber, including adding the ability to see estimated trip fares up front and then reject a trip without penalty.”

The effects of AB5 on freelancers, the arts and entertainment industry

Los Angeles may be known as a home to the stars, but artists in every genre flourish here. Most film and television workers have some kind of union protection already, but extras may not. Musicians – the group often credited as the creator of “the gig,” are especially vulnerable to AB5’s new regulations.

Photographers and writers, too, may face difficulties. Under AB5, a writer or photographer who submits more than 35 pieces a year to any given outlet must be hired as an employee. Many freelance writers and photographers submit far more than this to any given outlet. The Los Angeles Times reported in December that Vox Media has already dropped hundreds of freelance writers.

Professional gamers are protected by AB5

Of all the industries affected by AB5, professional gaming may see the biggest benefit for its workers. Pro gaming tournaments bring in millions of dollars in revenue, and some companies have teams of players who are treated like employees but classified as contractors.

Riot Games is one of those companies. It created League of Legends, the most popular PC game on the market, and has 10 teams of players who are classified as professional athletes. Yet despite passing the ABC test, pro gamers who work for Riot Games are classified as contractors:

League of Legends players are not considered employees. According to the 2019 Championship Series rules, gaming athletes are independent contractors and the Riot Games gamer contract does not define the employer/employee relationship.

Another contrast to traditional professional sports is the fact that gaming athletes compete in a sport operated and owned by one corporate entity. Anyone can form a league or team to play basketball, football, or soccer, because the actual sports are not trademarked by a company. But to join a League of Legends team, a gamer has to enter into contract with the parent company.

Riot Games therefore exerts enormous control over its athletes. The company mandates players’ salaries. Players practice in locations specified by the company, and are often required to exclusively use team-owned equipment.

Riot Games, much like Uber and Lyft, has argued that their workers are correctly classified; “But just like the drivers that power the networks of Uber and Lyft, without professional players, Riot Games simply could not exist as it does.”

AB5 was intended to protect workers who were treated like employees but denied the benefits of employment. It was supposed to ensure that companies like Uber and Riot Games treated their workers fairly. However, for gig workers who aren’t searching for employment – or who haven’t found it yet – AB5 has had some devastating consequences.

If you have questions about AB5 and its effects on your livelihood, or if your employer has misclassified you as a contractor, McNicholas & McNicholas, LLP can help. To schedule your free consultation with one of our Los Angeles employment attorneys, call our office at 310-474-1582 or reach out through our contact page to tell us your story.