Ninth Circuit tosses Uber’s challenge to California gig worker law

(CN) — The Ninth Circuit Court of Appeals panel affirmed on Monday morning a federal court’s decision to dismiss a lawsuit brought by Uber, Postmates, and two of their gig drivers challenging the constitutionality of a California bill that requires certain gig economy companies to reclassify independent contractors as employees.

Under Assembly Bill 5, which went into effect in 2020, workers reclassified as employees rather than independent contractors would be eligible for minimum wage, overtime and other standard employee protections.

As part of their argument that the bill was unconstitutional, the plaintiffs said AB 5 unfairly targeted gig drivers because it used different tests to determine the classification of Uber drivers versus other gig workers like handymen or dog walkers who provide services through apps like Wag!, which is marketed as the “Uber for dogs” and uses a similar business model to Uber and Postmates.

A federal court dismissed the case in 2021, but a three-judge Ninth Circuit panel ruled in March 2023 that the plaintiffs had been denied equal protection of the law because the "piecemeal fashion" in which legislators made exemptions to AB 5 supported Uber's claims that the law violated its rights to equal protection.

In December, the Ninth Circuit vacated its previous order, ruling that it was in favor of accepting California’s request for a hearing before a full panel of 11 randomly selected judges.

U.S. Circuit Judge Jacqueline Nguyen, writing for the 11-judge panel, said in the 27-page ruling Monday that there was a rational state interest for California to apply different tests to delivery drivers versus dog walkers — particularly, that the state saw Uber, Postmates and other transportation and delivery services as “substantial contributors” to the problem of worker misclassification in the Golden State.

“There are plausible reasons for treating transportation and delivery referral companies differently from other types of referral companies, particularly where the legislature perceived transportation and delivery companies as the most significant perpetrators of the problem it sought to address — worker misclassification,” she wrote.

Nguyen wrote that the California legislature may have perceived Uber as the pioneer of the on-demand app-based business model that many other services replicated, and that is  “certainly reasonable” for the legislature to try to target the problem of worker misclassification at its origin.

Nguyen determined that AB5 was constitutional and did not unfairly target gig economies, therefore the federal court was correct when it dismissed the plaintiffs’ Equal Protection Act claims and denied injunctive relief. She rejected the plaintiffs’ argument that it was inconsistent for California to treat Uber drivers differently than dog walkers under AB5.

“That AB 5 may be underinclusive because it does not extend the ABC test to every industry and occupation that has historically contributed to California’s misclassification woes does not render it unconstitutionally irrational,” Nguyen wrote.

The plaintiffs first accused AB 5 of being unconstitutional when suing California in 2019 after Governor Gavin Newsom signed the legislation. They said the bill would force the mobile app companies to make costly changes to their business models, deny contractors the flexibility they currently enjoy in their gig jobs and could put those jobs at risk. 

The plaintiffs asked the court to issue a judgment declaring AB 5 invalid and unenforceable, and also sought preliminary and permanent injunctions to block California, its attorney general and other officials from taking any action to enforce the law against the plaintiffs.

Theane Evangelis, counsel for the plaintiffs, said in a statement that AB 5 “unfairly targeted my clients out of animus rather than reason.”

“Fortunately, in Proposition 22, California voters rejected AB 5 because it ‘threatened to take away the flexible work opportunities of hundreds of thousands of Californians,’” Evangelis said.

Proposition 22, a ballot measure that was approved by California voters in the November 2020 election, primarily addresses the classification and treatment of app-based drivers for companies like Uber, Lyft and DoorDash.

The proposition allows app-based transportation and delivery drivers to be classified as independent contractors rather than employees. This classification exempts these companies from adhering to AB 5 but does not completely do away with the bill for other industries.

Proposition 22 was one of the most expensive ballot measures in California history, with gig economy companies spending over $200 million to support it.

The proposition is also currently being challenged by gig workers and their union, who say the proposition unconstitutionally interferes with the state Legislature’s authority. The California Supreme Court heard arguments on Proposition 22 in May, but have not yet issued a decision.

Supporters of the proposition argue that it provides drivers with flexibility and the ability to work as independent contractors while still receiving some benefits. Critics, including some labor unions, say that it denies drivers the full range of benefits and protections that come with employee status, such as unemployment insurance, paid sick leave and the right to unionize.

Lawyers representing California Attorney General Rob Bonta did not respond before publication.

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