Federal Court in California Declines Gig Economy Companies’ Bid to Stop Enforcement of AB 5

3 minute read | February.28.2020

Several groups have launched legal attacks on California’s new independent contractor  misclassification law AB 5 since it went into effect on January 1, 2020.  While some groups had early success, United States District Court Judge Dolly Gee denied a request by Uber and Postmates to preliminarily enjoin enforcement of AB 5 against them while their constitutional challenge to the law plays out, in Olson, et al. v. State of California, et al.

Uber and Postmates, and two gig economy app users, had asked the Court to halt AB 5 on the grounds that it violated three clauses of the United States and California Constitutions:

  1. Equal Protection Clause, because the various exemptions set forth in the statute causes it to disproportionally affect gig economy companies and their workers.

  2. Due Process Clause, because AB 5 deprives workers of life, liberty and property by limiting their work options.

  3. Contracts Clause, because AB 5 interferes with the contractual rights between workers and gig economy platform companies, which state that workers are independent contractors.

Judge Dee rejected the Plaintiffs’ arguments and denied the motion for preliminary injunction, noting that the Plaintiffs’ arguments that AB 5 would drastically alter their business were speculative. The court relied in part on the argument by Uber and Postmates that drivers who use their app would remain independent contractors under AB 5. In the court’s view, this undermined the argument that an injunction was necessary to prevent irreparable harm.

Soon after the court’s denial of the motion for preliminary injunction, the state of California filed a motion to dismiss the case in its entirety, arguing that each of the Plaintiffs’ constitutional arguments fail as a matter of law. The hearing on the motion to dismiss is scheduled for April 24, 2020.

This lawsuit is among other challenges California entities have lodged against AB 5, including:

  • On January 16, 2020, a federal judge in the United States District Court for the Southern District of California granted the California Trucking Association’s request for a preliminary injunction against AB 5. The court reasoned, in part, that as applied to truckers, the law is preempted by the Federal Aviation Administration Authorization Act, which controls laws “related to a price, route or service of any motor carrier . . . with respect to the transportation of property.” As a result of that order, the State of California cannot enforce AB 5 against the trucking industry until the case is decided. On January 29, 2020, the State of California filed a Notice of Appeal of the Court’s order granting the injunction.

  • On December 20, 2019, a group of journalists filed a motion for preliminary injunction in the U.S. District Court for the Central District of California, seeking to stop enforcement of AB 5 against journalists. AB 5 has an exemption for freelance writers, but it only applies to writers who submit 35 or fewer articles for the same publication. As a result, writers who submit 36 or more articles for a single publication would be covered by AB 5. The journalists argued this is arbitrary and unfair, given that other groups exempted under AB 5 are not subject to similar numerical restrictions. The hearing on the journalists’ motion for preliminary injunction is scheduled for March 9, 2020.

  • Several gig economy companies including Lyft and Uber are promoting a ballot initiative, the Protect App-Based Drivers and Services Act, for California voters to consider in November 2020. This ballot initiative would take app-based drivers outside the scope of AB 5, while also mandating that transportation network companies and delivery network companies provide certain benefits to app-based drivers. Those benefits include an earnings guarantee above the California minimum wage, mileage reimbursement requirements, and a monthly healthcare contribution.