Ninth Circuit Victory for California Workers Against Uber and Postmates

On March 17, 2023, a panel of the Ninth Circuit Court of Appeals delivered the latest in a series of decisions on California Assembly Bill 5 (“A.B. 5”), ruling that the United States District Court for the Central District of California had erred in dismissing equal protection claims filed by Uber Technologies, Inc. and Postsmates, Inc. (together, “Plaintiffs”) against the State of California and the California Attorney General (together, “Defendants”). The three-judge panel upheld the lower court’s decision to dismiss Plaintiffs’ due process, contract clause, and bill of attainder claims, ultimately remanding the District Court’s order denying Plaintiffs’ motion for a preliminary injunction for reconsideration in light of new facts.

The California Legislature passed A.B. 5 in 2019 to codify the “ABC test” the Supreme Court of California adopted in Dynamex Operations West, Inc. v. Superior Court of Los Angeles. The legislation was intended to “ensure workers who are currently exploited by being misclassified as independent contractors instead of recognized as employees have the basic rights and protections they deserve under the law, including a minimum wage, workers’ compensation if they are injured on the job, unemployment insurance, paid sick leave, and paid family leave.”

A.B. 5 presumptively categorizes workers as employees.  Hiring entities may not classify their workers as independent contractors unless they satisfy the law’s three-part test, showing:

A. That the person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact; and

B. That the person performs work that is outside the usual court of the hiring entity’s business; and

C. The person is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

A.B. 5 also exempts sweeping categories of workers from its purview, including physicians, veterinarians, lawyers, and accountants. The law was amended in 2020 to exempt even more categories of workers, including app-based gig workers.

Plaintiffs jointly filed a complaint on December 30, 2019, in the Central District of California, arguing that A.B. 5 is unconstitutional and seeking declaratory, injunctive, and other forms of relief. Plaintiffs also filed a motion to enjoin the State of California from enforcing A.B. 5. On February 10, 2020, the district court denied Plaintiffs’ motion for preliminary injunctive relief, concluding that A.B. 5 was related to a legitimate state interest and did not target gig economy companies in violation of their equal protection rights.  Plaintiffs appealed this decision to the Ninth Circuit.

Shortly before the Ninth Circuit was due to hear appellate arguments on the district court’s order denying preliminary injunction, Plaintiffs filed a Second Amended Complaint supplementing their equal protection claim by noting legislation further expanding the scope of workers exempted from A.B. 5, including app-based gig workers for TaskRabbit and Wag!. The district court granted Defendants’ motion to dismiss Plaintiffs’ Second Amended Complaint in its entirety, with prejudice. In the decision, the Court rejected Plaintiffs’ contention that the exemption of TaskRabbit and Wag! workers demonstrates A.B. 5 lacks a rational basis, instead concluding Plaintiffs failed to show A.B. 5 is motivated by impermissible animus towards an unpopular group.

The Ninth Circuit reversed this decision, holding that under the rational basis review standard, Plaintiffs met their burden and plausibly alleged that A.B. 5, as amended, violates the Equal Protection Clause for people involved in app-based ride-hailing and delivery services. The panel agreed that the broad exemptions of other categories of workers in A.B. 5 is inconsistent with the law’s stated purpose and supports Plaintiff’s’ allegation that the exemptions resulted from lobbying efforts and backroom dealings rather than legitimate public interest. The panel also determined that the exclusion of Plaintiffs from the carve outs, despite exceptions for other app-based gig business, could plausibly be attributed to animus, citing a quote from A.B. 5 sponsor Assemblywoman Lorena Gonzalez that she was “open to changes in the bill next year, including an exemption for musicians—but not for app-based ride-hailing and delivery giants.”

Updates will be posted to this blog as the matter progresses.  The case caption for this lawsuit is Lydia Olson et al. v. State of California et al, Case No. 21-55757, filed in the U.S. Court of Appeals for the Ninth Circuit.  The district court proceeding is Olson v. California, case number CV-1910956-DMG.

The legal team at Miller Shah LLP has extensive experience representing employment and misclassification matters. If you have any questions regarding this subject or this post, please contact Chiharu Sekino (cgsekino@millershah.com). The firm can also be reached toll-free at (866) 540-5505.

Miller Shah LLP is a law firm with offices in California, Connecticut, Florida, New Jersey, New York, and Pennsylvania. The firm is an active member of the International Advisory Group, which provides clients with access to excellent legal and accounting resources across the globe. For more information about the firm, please visit www.millershah.com.