California’s independent contractor law, AB5, has been upheld unanimously by an 11-member panel of the the 9th U.S. Circuit Court of Appeals, the second time in recent months the law has been victorious in federal courts.
The case known as Olson, after the lead named plaintiff, Uber driver Lydia Olson, was filed in 2019 by Uber (NYSE: UBER) and Postmates, a gig worker delivery company that was acquired by Uber in 2020. At its heart was the question of whether, given the numerous exemptions from AB5 and its follow-up legislation granted to various job classifications, gig workers like those at Uber were being singled out by having to comply with the law.
A three-judge panel last year ruled that Uber and Postmates drivers had been targeted, in a decision that brought into its reasoning the fiery words of then-Assemblywoman Lorena Gonzalez, the driving force behind AB5 who aimed much of her public commentary against both trucking and gig workers such as those at Uber. That appellate decision came on appeal of a lower court ruling that dismissed the Uber/Postmates claims.
But the 9th Circuit agreed to take up the case in a larger 11-member panel of the 29 judges on the Circuit. And on Monday, it ruled that AB5 did not treat gig workers unfairly.
The ruling on what has been known as the “other” AB5 case comes about three months after Judge Roger Benitez of the U.S. District Court for the Southern District of California ruled that trucking was not exempt from AB5 as a result of possible preemption by the Federal Aviation Administration Authorization Act (F4A) or for other reasons. The California Trucking Association is the lead plaintiff in that case.
That one-two punch gives the backers of AB5 two victories in a relatively short period of time.
Summing up the case brought by Uber, the court said the company had argued that it was similar to other app-based companies that had been granted exemptions from AB5. One that was front and center is a company called Wag!, which on the surface appears to be structured mostly identically to Uber’s core activity: Uber app users summon a car to their location to take them to a desired destination; Wag! uses an app to bring a dog walker to a dog owner’s home.
But the court said there are “rational reasons” for that difference in approach that ultimately negates Uber’s claim that it was treated unfairly under the Equal Protection clause of the Constitution. “So long as there is some conceivable legitimate purpose justifying the statute, we need not inquire into the legislature’s actual purpose in enacting it,” the court wrote.
The similarities between Uber and Wag! are not enough to hold that the former didn’t receive the equal protection of the law, the court wrote. The difference, according to the court, is the level of misclassification of workers as independent contractors is more extreme in certain industries, like the activities of Uber and Postmates.
Transportation companies “substantial” role in misclassification
The legislature, the court wrote, may have viewed those companies as “more substantial contributors to the problem of misclassification than referral agencies engaged in other services,” the court wrote. It cited a recent precedent from its own decisions that said it is “conceivable that misclassification was more rampant in certain industries and therefore deserving of special attention.”
Given that, it is possible that California lawmakers “acted rationally,” which is the legal test the court applied. And citing another precedent, the court said that perception of rationality doesn’t need to be supported by “evidence or empirical data.”
The Uber/Postmates case has been proceeding side by side with a case challenging the decision by California voters on Election Day 2020 to exempt companies like Uber and Lyft (NASDAQ: LYFT) from being regulated by AB5. The issues in that case centered on Prop 22 are completely different from the Uber/Postmates case as well as the AB5 litigation, focusing instead on the power of voters under the California initiative process and its impact on drivers and workers’ compensation. It is also a state case, rather than a federal one.
Impact on the Prop 22 case
In the Prop 22 case, a lower court overturned the Election Day vote, an appeals court reinstated it, and the appeal went to the California Supreme Court. Last month, oral arguments in the case were viewed as favorable to the Uber/Lyft position and the retention of the initiative result.
The court in the Uber/Postmates case said the appeal had not been made moot by Prop 22.
“There are ongoing state enforcement actions seeking retrospective relief including civil penalties for Uber’s and Postmates’ alleged violations of AB5,” the court wrote. Resolving that could be impacted by the Uber/Postmates case independent of how the Prop 22 litigation plays out, the court said.
Marc Blubaugh, head of the transportation practice at the Benesch Law Firm, agreed that if Prop 22 is upheld in the California Supreme Court, the impact of the Uber/Postmates decision is “moot for prospective purposes.”
“However, even then, this decision creates exposure for Uber, Postmates, and others for conduct occurring before the effective date of Proposition 22 since Proposition 22 does not have retroactive application,” Blubaugh wrote in an email to FreightWaves.
The core of AB5 is a three-prong test to help determine whether a worker should be considered independent or an employee. Prongs A and C deal with control and whether the work is “an independently established trade.”
But it is the B prong that has created the most uncertainty for trucking and gig companies. To be considered independent, a worker must “perform work that is outside the usual course of the hiring entity’s business.” An independent truck driver or an independent driver hauling people or restaurant meals around for companies whose activities are centered around trucks or deliveries may be in conflict with the B prong.
The CTA case rolls on
The CTA case brought by the California Trucking Association, like Uber/Postmates filed in 2019, has had a volatile history.
On New Year’s Eve 2019, Benitez handed down an injunction blocking AB5 from being implemented in trucking because of F4A. Subsequently, the injunction was overturned by a three-judge panel of the 9th Circuit, CTA unsuccessfully sought review by the U.S. Supreme Court, and the case went back to the lower court. This time, Benitez rejected the F4A claim as well as other arguments by CTA and the Owner-Operator Independent Drivers Association, which joined as a plaintiff later in the timeline. CTA and OOIDA have appealed that decision.
Blubaugh said the Uber/Postmates decision is not good news for the CTA/OOIDA appeal of its AB5 case, which most legal experts were giving small odds of success already. “Today’s opinion portends that CTA will likely face a highly skeptical appellate panel with respect to CTA’s Equal Protection claim,” Blubaugh said. “After all, Judge Benitez already ruled that CTA’s Equal Protection failed as a matter of law, and this appellate decision is consistent with that holding.”
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Stephen Webster
British Columbia and some other parts of Canada are looking at a $20 hr plus min wage for gig workers including Uber drivers. This is because part time low income gig workers often came as foreign students are using both gov programs for assistance and non-profit organizations help including housing and food assistance. Gig workers can not afford rent in many parts of Canada and the U S and even the U S get free medical services as their income is so low
This is also happening with low income housing for truck drivers as driver Inc as lease ops.
Steven R Manson
It’s ez…QUIT DOING BUSINESSS IN CALIFORNIA