California’s Assembly Bill Five (AB5), commonly referred to as the gig economy law, looks to be here to stay despite the best efforts of Uber Technologies Inc and Postmates Inc. Both companies have called the law a “monstrous threat” to their business model, but a judge disagrees.
Uber and Postmates had sought a preliminary injunction to allow their drivers to continue operating without the protection of AB5. The companies contend that the law is unconstitutional and unfair. They went so far as to refer to the law as an “irrational Frankenstein-like statute.”
U.S. District Judge Dolly M. Gee made it clear that she planned on rejecting the injunction request unless the two companies can show a concrete example of why the legislature doesn’t make sense.
So far neither Postmates or Uber have been able to prove that the law is unconstitutional. All they can really show is that it AB5 will cost both companies more money.
Uber and Postmates both rely on drivers for their business to function. Up until this law was passed, both companies were classifying their drivers independent contractors. This allows the companies to avoid paying their drivers any sort of benefits. AB5 will reclassify all of those drivers as employees.
The reclassification makes a big difference because that means those drivers are not only entitled to benefits, but also for overtime pay. Uber and Postmates estimate that their costs are going to increase by twenty to forty percent as a result of the new law.
The Claims Journal Spoke with Charlotte Garden, an Associate Professor at Seattle University School of Law about the viability of the legal challenge by Uber and Postmates. “My guess is that the companies were hoping for an outlier judge — maybe someone very skeptical of regulations in general — and that such a judge might be willing to make the leap the companies were asking for at the preliminary injunction stage,” said Garden.
While Uber and Postmates seem to be in trouble, there is no doubt that they will pursue this in court until they are outright denied. The outcome of their case will likely be used as precedent for the rest of the country. It’s an important moment for employers and independent contractors alike.