Karen Anderson is a fellow writer and a champion in the fight against California’s Assembly Bill 5 (AB5), which effectively destroyed the livelihoods of independent professionals, freelancers, the self-employed and small businesses in the state. Karen is the founder of “Freelancers Against AB5” and has faithfully documented the stories of the individuals who lives were upended and livelihoods severely blunted or removed because of the law and its impact. The Biden administration is looking to propagate AB5 nationally through new Department of Labor Rule for independent contractors. You think California doesn’t matter to you? Well, this is how it does. People like Acting Secretary of Labor Julie Su, who oversaw the disastrous billion dollar fraud and malfeasance when she was California’s Secretary of Labor, is now in charge nationally at the Department of Labor. Her ability to “fail up” now gives her access to share the disasters of AB5 with the entire nation. It’s time to pay attention.
Karen is my guest columnist this month. She also posted the article on her own Substack. For those unfamiliar with AB5, Karen gave testimony before the House Committee on Education and the Workforce about the impact of the law.
New Year’s Day 2024 marked the dismal four-year anniversary of California’s cruelest law, AB-5 (Assembly Bill 5) that has destroyed the careers of hundreds of thousands of independent professionals across a vast swath of professions.
In a nutshell, AB-5 bans independent contracting across all professions unless the occupation received an exemption from the onerous ABC test that presumptively classifies all workers as employees. Albeit many of the exemptions come with fine print and caveats, lobbying power was the key to gaining an exemption from the bill’s author, then-Assemblywoman Lorena Gonzalez, who left the legislature in 2022 to head the California Labor Federation, the bill’s sponsor. California Labor Federation is arguably the most powerful organization in Sacramento and represents more than 1,200 unions. Gonzalez continues to wield undue influence over state legislators, and meanwhile, despite the law’s infamy, not a single incumbent Democrat has ever come out against AB-5 since its passage in September 2019.
Although there were some new headlines in 2023 about AB-5 (mostly to do with litigation taking place in the trucking and ride hail sectors), don’t count on the media for accurate reporting about this putrid law. Reporters from the legacy media including Reuter’s, Forbes, and The Wall Street Journal consistently get their facts wrong about the very basics of AB-5, regurgitating each other’s erroneous information to the dismay of those of us who are actively advocating against the law. The most common misconception is that AB-5 was supposedly repealed altogether when voters passed Prop. 22 in November 2020. Nothing could be further from the truth. Prop. 22 exempted ONLY rideshare and app-based delivery platforms from the law; every other profession, trade and industry remains under its purview.
Sadly, AB-5 is alive and well and wreaking havoc on small businesses, licensed professionals, self-employed individuals, nonprofit organizations, independent healthcare and wellness professionals, the performing arts, trucking, six-figure earners and many more. Having an LLC or SCorp won’t get you off the hook, either.
Most of the collateral damage is not reported by the media and remains under the radar. Those ensnared in its trap know all too well the damage that has occurred to independent careers and also to the thousands of small businesses hit with astronomical fines and penalties for allegedly misclassifying an independent contractor. Unfortunately, most Californians mistakenly believe AB-5 doesn’t apply to them and that it’s only about Uber, Lyft and trucking — if they even know what AB-5 is in the first place, that is.
In California, AB-5’s ongoing destruction of livelihoods equals death by a thousand cuts. The freelance transcription profession, for example, is virtually extinct across the state, thanks to AB-5. Community theater and the concert dance scene have been decimated by AB-5, as is well documented even by the pro-labor LA Times. Other sectors hard hit by AB-5 include independent filmmaking, event planning, wedding planning, tutoring, music instruction, and more.
The ad-hoc group Freelancers Against AB5 has compiled thousands of stories of devastation in an eye-opening archive categorized by profession. The group has identified more than 600 categories of professions that have been negatively impacted by AB-5 at one time or another, and in one way or another, since the bill’s passage — everyone from fly-fishing guides and lactation consultants to pharmacists, audio techs, cancer registrars, massage therapists, music teachers, grant researchers, radio journalists, architectural designers, conference producers, and many more.
Although the fight to repeal AB-5 is increasingly challenging, one bright spot in 2023 occurred when a three-judge panel of the 9th Circuit released its decision on an older case filed against AB-5 by Uber and Postmates that had been dismissed outright by a lower court judge in February 2020. In Olson v. the State of California, the 9th Circuit determined that the arbitrary exemptions of AB-5 plausibly violate the Equal Protection Clause under the 14th Amendment, and that the author of the bill, Lorena Gonzalez, exhibited blatant “animus without reason” against the plaintiff. In a scathing rebuke, the decision cited Gonzalez 14 times for her bad behavior when crafting AB 5, alleging backroom dealing, naked favoritism, pure spite, and corruption. The decision also stated that the Deputy Attorney General for the state of California, during the hearing on July 13, 2022, could not articulate a conceivable rationale for the arbitrary exemptions contained in the law.
Unfortunately, the state of California and Big Labor would not rest easy with such a brutal indictment of its precious AB 5, requesting an “en banc” review by the 9th Circuit. On December 18, 2023, the 9th Circuit agreed to re-hear the case and vacated the original decision. A hearing in front of 11 judges will take place sometime in March 2024.
A bright spot for rideshare and app-based delivery companies occurred on March 13, 2023 when the Court of Appeal determined that Prop. 22 was mostly constitutional, reversing a Superior Court judge’s ruling from 2021. Naturally, Big Labor filed an appeal with the California Supreme Court, which has agreed to hear the case. With a perpetual monkey on its back, Uber and Lyft will be arguing the case in front of the very judicial body that came up with the onerous ABC test in the infamous Dynamex decision of 2018, later expanded and codified in AB-5 to apply to all professions. Ironically, the state of California is obliged to defend the will of the voters who overwhelmingly passed the ballot initiative by 58 percent.
Meanwhile, the trucking sector continues to pursue litigation against AB-5, seeking a ruling from the same U.S. District Court judge who granted a preliminary injunction in January 2020. For two-and-a-half years, the preliminary injunction protected independent owner-operator truckers from enforcement of AB-5 until litigation came to a dead end in June 2022. A ruling is expected in the coming months.
In the meantime, new data is out about AB-5’s adverse affect on independent owner-operator truckers. According to Trinity Underwriting Managers, there has been a dramatic shrinkage of account size for its freight carriers, between 30-40% lower than last year. Soon to be released, an empirical study by economist Liya Palagashivili of the Mercatus Center finds that self-employment and overall employment has decreased substantially in California post-AB 5.
In other news from 2023, the fight for freelancers became front and center in the halls of Congress when Congressman Kevin Kiley (R-CA) presided over the Workforce Protections subcommittee’s hearing about independent contracting on April 19, 2023. A former assemblyman, Rep. Kiley was the leading advocate for repealing AB-5 when he was in the California state legislature, and has since taken the lead opposing federal efforts that restrict independent contracting nationwide.
That national fight has taken on even more urgency now that the U.S. Department of Labor has released its final independent contracting rule on January 8, 2024. Inexplicably, the six-factor classification test — totaling a mind-boggling 339 pages — takes its inspiration from AB-5 despite the Department’s attempt to distance itself from the ABC test. In the original 184-page proposed regulation released in 2022, the Department actually lauded California’s ABC test, and lamented the fact that they cannot verbatim deploy it into the Fair Labor Standards Act without risking being overturned by the Supreme Court. The final verbiage, however, mimics the California’s ABC test nonetheless.
Despite the unmitigated dumpster fire of AB-5 in California, the attacks on independent contracting continue to spread nationwide, pushed by Big Labor, the USDOL, and the Biden Administration. Those who value self-employment and the freedom to be their own boss must join the fight and stand up against these relentless pursuits to put legitimate career professionals out of business. If they can do it to millions of freelancers in California, they can do it to the almost 68 million Americans who choose independent contracting as a career or to supplement their incomes. The nation must heed the cautionary tale of California and reject these ongoing assaults on worker freedom.