In September 2019, the California legislature passed, and Governor Gavin Newsom signed into law, Assembly Bill 5 (“AB5”), which established a more stringent test for classifying workers as independent contractors. This so-called “ABC test” requires a hiring entity to establish all three of the following conditions in order to classify an individual as an independent contractor:

1. The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
2. The person performs work that is outside the usual course of the hiring entity’s business.
3. The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

Cal. Labor Code §2750.3(a)(1). The law took effect on January 1, 2020 with estimations that it would impact over two million independent contractors.

On May 5, 2020, the Attorney General of California along with other government entities (the “People”) sued Uber Technologies, Inc. and Lyft, Inc. (the “Companies”) claiming that the companies had misclassified their ride-hailing drivers as independent contractors rather than employees according to AB5. On June 25, 2020, the People moved for a preliminary injunction enjoining the companies from classifying their drivers as independent contractors. In a thirty-five page Order the Honorable Ethan P. Schulman of the California Superior Court ruled in favor of the People and granted the requested injunction for the pendency of the litigation. Judge Schulman specifically noted that the Companies could not satisfy part B of the ABC test because the drivers were integral to the Companies’ usual course of business.

The Companies have stated they will appeal this ruling, and argue that their workers do not want to be classified as employees. Historically, the desires of the workers do not impact the determination of whether individuals can be classified as independent contractors because it keeps those individuals who would like to be afforded the protections of employee status out of the market and puts businesses that comply with the law at a disadvantage to those businesses that do not. See Dynamex Operations W. v. Superior Court, 4 Cal. 5th 903, 960, 416 P.3d 1, 38 (2018), reh'g denied (June 20, 2018).

Although AB5 is applicable only in California, the three-part test is a common test applied in various states, including Maryland. The new ruling in California threatens to shake up the “gig economy” in that state, and states like Maryland, where the ABC test is already in place.

[View source.]