California Court rules gig worker exemption from employee rights unconstitutional

Published on: 27/08/2021


The latest round in a bitterly fought contest in California over employment status, could set the tone for the gig economy and beyond. 

In 2019, the state legislature enacted a  law limiting the circumstances in which individuals can be classified as independent contractors. 

The law (CA AB5) contains some elements which will be familiar to UK HR professionals. It states that individuals delivering services personally cannot be self-employed if they are working under the end-user’s control or if they are not running their own business. 

What was novel is that it also stated that these individuals cannot be self-employed if the task they are performing forms part of the core business of the end-user. While this is not part of the legal test for employee status in the UK, where California innovates the rest of the developed world tends to follow. 

Last year, Uber and Lyft (along with Doordash and Instacart) successfully used a public ballot mechanism, including spending $200m campaigning, to carve out an exemption for their sector so that workers at gig companies continued to be classified as contractors, without access to employee rights such as minimum wage, unemployment benefits, health insurance, and collective bargaining. 

This month, a California County Court has ruled that this carve out was unconstitutional because it illegally “limits the power of a future legislature to define app-based drivers as workers subject to workers’ compensation law.” While gig platform companies involved will doubtless appeal to the California Supreme Court (at least), this is still an important development. 

The coverage has mainly focused on lift share and delivery companies which is understandable as they are public facing and the disputed exemption is limited to those services. 

However, AB5 has probably had bigger implications away from the headlines in sectors to which the disputed exemption does not apply, most acutely in tech and software.  

A software development company would not realistically be able to argue that an individual software developer it had engaged on a self-employed basis was not delivering its core business. 

For advice on employment status, please contact our employment lawyers. 


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