February 18, 2020

Companies' Failed Request to Block Enforcement of AB 5 Signals Uphill Battle for Challengers

Holland & Knight Alert
Tina Tellado | Deisy Castro

Highlights

  • Another California federal judge has denied a request to block the enforcement of California Assembly Bill (AB) 5 while the lawsuit challenging the statute is pending.
  • At issue in this case is the constitutionality of AB 5, which went into effect on Jan. 1, 2020. AB 5 codifies and expands the ABC test adopted by the California Supreme Court in 2018 for determining whether a worker is properly classified as an employee or independent contractor.
  • In denying the motion, the U.S. District Court for the Central District of California signaled the difficulty that plaintiffs may face in challenging the constitutionality of the controversial new law.

Another California federal judge has denied a request to block the enforcement of California Assembly Bill (AB) 5 while the lawsuit challenging the statute is pending. Specifically, in Olson, et al. v. State of California, et al., No. 2:19-cv-10956 (Olson), currently pending in the Central District of California, U.S. District Judge Dolly Gee on Feb. 10, 2020, denied the request from Uber, Postmates and the individual plaintiffs for a preliminary injunction to stop AB 5 from being enforced against them. In denying the motion, the Court signaled the difficulty that plaintiffs may face in challenging the constitutionality of the controversial new law.

Background

At issue in this case is the constitutionality of AB 5, which went into effect on Jan. 1, 2020. AB 5 codifies and expands the ABC test for determining whether a worker is properly classified as an employee or independent contractor, which was adopted by the California Supreme Court in Dynamex Operations West, Inc. v. Superior Court of Los Angeles, 4 Cal. 5th 903 (2018). Under the ABC test, a worker is considered an employee (and not an independent contractor), unless the hiring entity can demonstrate that the worker: A) is "free from the control and direction of the hirer in connection with the performance of the work, both under contract for the performance of such work and in fact"; B) "performs work that is outside the usual course of the hiring entity's business"; and C) is "customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity." Through AB 5, the California legislature adopted the ABC test for all provisions of the California Labor Code, the Unemployment Insurance Code and Industrial Wage Commission wage orders. AB 5 does include exemptions for numerous occupations, industries and types of working relationships.

In their lawsuit, filed on Dec. 30, 2019, Uber, Postmates and the individual plaintiffs allege that AB 5 violates both the U.S. and California constitutions. Thereafter, on Jan. 8, 2020, they filed a Motion for Preliminary Injunction requesting that the Court bar AB 5 from being enforced against them while their lawsuit is pending. In denying the motion, Judge Gee did not a find a likelihood that the plaintiffs' underlying claims would succeed on the merits, which she explained is "the critical factor in determining whether to issue a preliminary injunction." She recognized that "the record contains some evidence that AB 5 targeted [Uber and Postmates] and other gig economy companies ...," but that is insufficient to "establish an Equal Protection violation where the statute addresses legitimate concerns of deleterious misclassification of workings in many industries, not just the economy." Judge Gee further acknowledged that although Uber and Postmates "have shown some measure of likelihood of irreparable harm," one of the requirements for a preliminary injunction, she also found that "the balance of equities and the public interest weigh in favor of permitting the State to enforce the legislation."

Uber and Postmates are not alone in their recent failed attempt to stop the enforcement of AB 5. Similarly, in American Society of Journalists and Authors Inc. v. Becerra, et al., No. 2:19-cv-10645 (ASJ), another federal judge in the U.S. District Court for the Central District of California denied the request for a temporary restraining order to stop the enforcement of AB 5. The ASJ plaintiffs' Motion for a Preliminary Injunction is still pending, with a hearing currently scheduled for March 9, 2020. Interestingly, unlike most parties challenging AB 5, the ASJ plaintiffs appear to fall within a carve-out to AB 5 that they argue is narrowed by impermissible, content-based restrictions that are unconstitutional and effectively mean that many of them will be classified as employees.

In contrast to the recent decisions in Olson and ASJ, the California Trucking Association achieved a better result in its Motion for a Preliminary Injunction, which was granted in California Trucking Association, et al. v. Becerra, et al., No. 3:18-cv-02458 (CTA), which is pending in the Southern District of California. (See Holland & Knight's previous alert, "Preliminary Injunction Bars Enforcement of AB 5 Against Motor Carriers Operating in California," Jan. 17, 2020.) Notably, Judge Gee in her recent decision in Olson noted that her finding "is not at odds" with the "finding of likelihood of success on the merits" of the California Trucking Association's challenge to AB 5 in CTA. Judge Gee reasoned that the key distinction was that, in Olson, the plaintiffs' claims rested on constitutional violations, unlike the preemption challenge in CTA.

Conclusion and Considerations

Given the numerous legal challenges currently facing AB 5, it is clear that more news regarding the new law is still to come. Nonetheless, these recent decisions regarding preliminary injunctions and temporary restraining orders, based on their analysis regarding the likelihood of success of merits, may provide some degree of insight into each court's current view on the challenges to AB 5. It is clear that those challenging AB 5 may face a long and uphill battle.

For more information regarding employee classification, AB 5 and class action litigation, please contact the authors or another member of Holland & Knight's Labor, Employment and Benefits Group.  


Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.


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