The AB5 Experiment – Should States Adopt California’s Worker Classification Law? (preprint)

ABSTRACT

A worker’s classification as either independent contractor or employee drives whether a worker is entitled to minimum wage, overtime, worker’s compensation, unemployment compensation, anti-discrimination protection, National Labor Relations Act protections, and many other safety-net protections. During the COVID-19 pandemic, unemployment protections were extended to independent contractors, but this is not the norm and likely will not continue post-pandemic. Classifying certain workers, particularly those who work in the app-based economy, is challenging, so states are looking for an answer — either through their own innovation or through that of other states. California’s answer was AB5. AB5’s goals were to correct misclassification issues for app-based drivers and other workers. A plethora of workers including court reporters, freelance writers and photographers, coaches, truckers, performing artists (mimes, magicians, comedians, etc.), and musicians rebuked AB5. AB5 is well known beyond California’s borders as it received, and continues to receive, nationwide attention predominantly because it reclassified app-based drivers (such as Uber, Lyft, DoorDash, etc.) as employees. As Justice Brandeis said, one of the benefits of federalism is that states can act as “laboratories of democracy.” Experimental federalism can provide for collective learning across the states if they are all experimenting, but often states look to one another for innovative solutions so that they can free-ride instead of experiment. Some states that are looking for an improved worker classification law seek to learn from, and potentially free-ride on, California’s AB5 “experiment.” In considering whether to adopt AB5 or a similar statute, states should consider, at a minimum, three factors relevancy of the law to their state, ease in obtaining information about the law, and the costs to adopt, implement, and enforce the law. This Article assists policymakers and interest groups by providing a detailed look at the AB5 experiment. It applies the aforementioned three factors and determines that California’s law, while well-intentioned is likely not valuable for, or adoptable by, other states or the federal government partly because it contains 109 exemptions. Ultimately, this Article concludes that to maximize the benefits of experimental federalism, a group of states, both homogenous and heterogenous to California, should experiment with more novel approaches to reach an optimal solution to worker (mis)classification. Adopting California’s worker classification law will result in states following a sub-optimal law and in premature convergence delaying states from reaching a better solution. Workers need protections, but California’s worker classification law does not sufficiently satisfy this need. Further experimentation is required.