An 11-judge en banc panel of the US Court of Appeals for the Ninth Circuit on Monday rejected the companies’ contention that a hostile, labor-friendly California Legislature aimed the law known as AB 5 at the gig industry.
Gig companies largely classifies drivers, delivery people, and others as independent contractors who aren’t legally entitled to overtime and other job protections afforded those who are classified as employees.
There are rational reasons for lawmakers to treat apps like Wag!—a service for hiring dog walkers that the companies called “Uber for dogs"—differently than Uber, the appeals court said. They may have viewed Uber and other app-based businesses providing transportation and delivery services as bigger offenders of worker misclassification than those offering other services, the court said.
“The legislature may have perceived Uber as the pioneer of the on-demand app-based business model that many other services replicated,” Judge
Uber shares fell as much as 4%, to its low for the day, on news of the court ruling. They rebounded to $68.77, down 0.8%, at 1:46 p.m. in New York.
The California legislature in 2019 passed AB 5 to codify the 2018 California Supreme Court’s 2018 decision in Dynamex Operations West v. Superior Court that created a three-factor “ABC test” to determine whether a worker is an employee or an independent contractor.
The worker is considered an independent contractor under that test if the hiring entity shows that they’re free from control and direction in performing the work, does work that’s outside the usual course of the company’s business, and independently established a business that’s the same nature as the work performed.
The court heard the issue en banc after the state sought full court review of a ruling that a trial judge erroneously dismissed gig company and worker claims that AB 5 unfairly disfavors app-based ride-hail and delivery services.
The ruling comes as the California Supreme Court is set to determine whether Uber, DoorDash Inc., and Lyft Inc. can treat workers as contractors under the voter-approved ballot measure Proposition 22, which exempts gig workers from AB 5.
The measure appears likely to survive after the state high court’s justices suggested during oral argument in May that Proposition 22 doesn’t infringe on the legislature’s constitutional power over some worker protections.
Exemptions Appropriate
Uber insisted that it and similarly situated app-based employers are being singled out for animus, pointing to remarks AB 5 author Assemblywoman Lorena Gonzalez, now head of the California Labor Federation, made about the rideshare industry.
AB 5 was an unconstitutionally irrational means of achieving California’s stated interest in addressing misclassification because of its numerous broad exemptions, contradicting the law’s purpose and rolling back Dynamex’s protections, the company said.
But the panel said the statutory scheme in its entirety reinforces the conclusion that the legislature acted rationally.
The exemptions that the legislature carved out “plausibly reflect its determination that workers in certain occupations and industries bore closer resemblance to traditionally lawful independent contractors,” it said. “And as plaintiffs acknowledge, Dynamex itself applied only to wage-order claims, while AB 5 was, in plaintiffs’ words, a ‘sea change’ that expanded the ABC test to cover a vast array of previously unavailable employment benefits, even as it exempted certain workers.”
Those benefits include minimum wage, workers’ compensation, unemployment insurance, paid sick leave, and paid family leave.
“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,” the panel said.
Gonzalez lauded the court’s decision as “a victory for all workers in the state, but especially the chronically misclassified workers in rideshare and delivery jobs.”
“Now, we must continue to seek ways to enforce this law,” she said in a statement.
Uber’s attorney, Theane Evangelis of Gibson, Dunn & Crutcher LLP, maintained in a statement that the legislature “unfairly targeted” the gig employers “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,” she sad.
The California Attorney General’s office didn’t immediately respond to a request for comment.
The case is Olson v. California, 9th Cir. en banc, No. 21-55757, 6/10/24.
