California’s AB 5 Will Force More Companies to Leave

Proposition 13 was called the political equivalent of a sonic boom by economist Art Laffer.

In limiting how much local governments could drain from Californians through property taxes, fed-up voters changed the political landscape with the 1978 ballot measure in a way that few state policies have, before or since.

Howard Jarvis’ Proposition 13 swept the country and made headlines around the world.

 Sounds a lot like Assembly Bill 5. The difference is Prop 13 is a force for good. AB 5 is a destroyer. Worse, other states are determined to duplicate California’s mistake.

AB 5, passed and signed last month, virtually bars Californians from working in the gig economy. The law, which implements a California Supreme Court decision, implements imposes a three-pronged test that identifies who’s still free to be a contract worker and who has to be a hired employee. 

A worker can be an independent contractor only if he or she:

  • A) Is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact;
  • B) Performs work that is outside the usual course of the hiring entity’s business; and
  • C) Is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.

Is there a freelance worker who could possibly pass Part B? 

Under that requirement, janitors could work as independent contractors only when they have contracts with companies not in the business of cleaning. 

Or a rideshare driver could work under a contract with Uber or Lyft only if those companies were primarily in the business of, say, selling vacuum cleaners. 

It’s a rigid framework, says labor law firm Fisher Phillips, that will appear, if it already hasn’t, in “the nightmares of your average gig economy business executives.” 

It’s already a bad dream for workers.

“Despite AB 5, Uber Drivers Would Rather Quit Than Be Employees,” reads the headline to the first installment of a two-part series in the online publication, Los Angeleno. One driver interviewed for the story said that “when the lawmakers make these laws, they don’t live our lives.”

“I have to pick my kids up or drop them off. I do that and come back to work, driving. What shift is going to let me do that other than this?”

Los Angeles Times columnist George Skelton, no puppet for corporations, recently wrote “there are tens of thousands of independent contractors who apparently don’t feel the slightest bit exploited. And they don’t want anything to do with formal employment or unions.”

The few able to pass the test and will remain independent contractors might not be independent for long. 

In a signing statement, Gov. Gavin Newsom said the next step “is creating pathways for more workers to form a union, collectively bargain to earn more, and have a stronger voice at work.” 

It is “in this spirit,” he said, that he would persuade political, labor, and business leaders to support an effort in which “workers excluded from the National Labor Relations Act” would have “the right to organize and collectively bargain.”

When Skelton said that maybe the aim of AB5 was “to rope in more dues-paying union members,” he might have been more correct than he realized. 

Where Proposition 13 set off an extended era of prosperity, AB 5 will rob workers of the freedom and flexibility they want and sometimes need from freelance work, and force more companies to leave the state than already are. California’s once-dynamic economy is on track to becoming permanently sclerotic.

AB 5 is a historic mistake.

No one knows what kinds of jobs Americans will be working in 50 years, not even 25, just as who lived through the Depression had no idea what work was going to be like in the 21st century. 

Classifying jobs through a government order is going to hold back the natural evolution of work. There are already regrets and there will be many more to come.

Kerry Jackson is a senior fellow with the Center for California Reform at the Pacific Research Institute.

Originally published in CalMatters


  1. Ronald Stein says

    Californians could express their pleasure or dissatisfaction with its current leadership at the poles, but rather than voting for a change in leadership, the tapped-out taxpayers and businesses are voting with their feet and leaving the one-party state. Sadly, most who understand the destructive path the Democratic Legislature is on, have already left the state, not wanting front-row seats to the implosion, leaving little hope of overturning the irrationality that is California politics.

    • Mike Donohue says

      I wonder what incentive there is for another state to apply conservative fiscal policies when Californians can just walk away from their destroyed state when it implodes. They can avoid any of the resulting pain by moving to a state that paid their bills when they came due, funded their pension plans and maintained their infrastructure.

  2. MARK BUCKLIN says

    Newsom is trying to boost Union membership. Unions support political candidates, and once elected are beholden to the Unions. While government worker unions have all but destroyed California, this is a chance for Newsom to double-down and get even more power.

  3. Never forget Barack Obama’s famous words “Elections have consequences” except CA, we voted no on prop8 twice, and it was ignored, expect Prop13 to be violated and chipped away, this would be a Tsunami of taxes for a bankrupt state, pensions are over 1Trillion underfunded, California property will be next to worthless when property taxes more than double. Newsome needs to be stopped, Aunt Nancy isn’t leaving until her nephew is President in 2024.

  4. Both the court decision and AB-5 were written by people who are not grounded in reality. Under A) what company would contract with a person over whom they had no control to direct what the contractor was to do. It doesn’t even take a close reading to see that B) and C) are mutually exclusive, contradicting each other.

    But would you expect less from the Duma in SacraMoskow?

  5. Just remember, there are TWO recall petitions circulating. Find one or BOTH and correctly sign them. Get rid of Pretty Boy Newsom!

  6. California resident for a short time and I just have one question>>>>

  7. Daniel Wright says

    This bill will make politicians like Bill and Hillary unable to give speeches to most corporations for big bucks in Ca. I wonder if there will be wavers for them.

  8. Janice Anderson says

    Government and Unions are an unholy alliance that attacks the very fabric of what this nation was built on…freedom!

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