Uber and Postmates started out the week with a bang by suing the State of California in federal court to stop the implementation of the states new freelance law, Assembly Bill 5, requiring the reclassification of independent contractors. Under certain circumstances, those contractors must be considered employees. The New York Times reported that Uber and Postmates requested an injunction to prevent the law from going into effect January 1, 2020, as scheduled. Two drivers – Lydia Olson and Miguel Perez – are part of the lawsuit.

The new law would protect Uber and Postmates drivers by treating them as employees and protecting their rights in terms of minimum wage, overtime, workers compensation and unemployment insurance. Also, employers like Uber and Postmates would be responsible for paying half of payroll taxes for Medicare and Social Security. This could increase costs by an estimated 20% to 30% for Uber and Postmates, said The New York Times. For Uber, this law could cost the company hundreds of millions of dollars.

The lawsuit alleges the new law violates state and federal constitutions, according to CNN.

AB-5 is a vague and incoherent statute that does not accomplish what its sponsors have stated they sought to achieve, said the lawsuit.

Though the bill passed on September 19, 2019, Uber and Postmates waited until year end to file their complaint. Postmates said it wants the injunction to give the company time to figure out how this would impact their drivers and to identify a potential compromise with lawmakers. It will be up to a federal judge to determine if an injunction is appropriate.

This lawsuit is an effort to preserve on-demand work opportunities, said Postmates.

On December 30, Assemblywoman Lorena Gonzalez, sponsor of Assembly Bill 5, went on Twitter to defend the law, calling Uber out on their statements about the law.

The one clear thing we know about Uber is they will do anything to try to exempt themselves from state regulations that make us all safer and their driver employees self-sufficient, Gonzalez wrote.

On December 12, Gonzalez also spoke out on the issue, after getting backlash from constituents.

In one tweet, Gonzalez said, If this bill doesnt work perfectly for you, say that. Advocate for ongoing work. But stop saying this is a bad bill. Its not. Its a great structural reform weve needed since the 1940s. Im not going to repeal it. We will continue to refine it. But educate yourself.

On where it came from and why we needed it: no individual gets to exempt themselves out of labor law. We dont allow that. We create laws to protect those who need it the most. We will protect those laws. We will also work with folks to see if changes are appropriate, Gonzalez added.

Insider Take:

There are two very different sides to this issue. Independent contractors, or gig workers, will benefit from this law – recognizing the risks they take on by operating as freelancers. They would receive the same protections that are afforded traditional employees. From the perspective of the employer, whether it is Uber, Postmates, Lyft or DoorDash, this bill will dramatically increase their costs which will either drive them out of business or drive up the costs of their services. In the case of the latter, those costs would likely be passed onto the customer. Subscriptions offered to frequent users, like Lyfts new Pink subscription service, could disappear or go up in cost. It does not seem likely that lawmakers will repeal the bill, but they may be open to amendments.