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Uber challenge to California worker-classification law revived by Ninth Circuit

The Ninth Circuit win for Uber and other gig-economy businesses comes days after a California appeals court found that a voter-approved exemption for these businesses from the state's worker-classification requirements is enforceable.

LOS ANGELES (CN) — In a second win this week for gig-economy businesses, the Ninth Circuit reinstated a challenge by Uber and Postmates of a California law that requires them to classify their workers as employees rather than independent contractors.

In a unanimous decision Friday, a three-judge panel ruled the companies had made a plausible case that Assembly Bill 5, which became law in 2019 and which required them to provide their workers with full employee benefits, violated their equal protection rights because it was motivated by lawmakers' dislike of ride-hail and analogous platforms.

The panel sent the case back to U.S. District Judge Dolly Gee in Los Angeles, who had dismissed the companies' claims in 2021, and instructed her to reconsider their request for a preliminary injunction.

The Ninth Circuit decision follows a ruling Monday by in California's First Appellate District that found Proposition 22, a ballot initiative passed in 2020 that carved out exemptions to the AB 5 requirements for Uber, Lyft, and app-based delivery services, is enforceable. Proposition 22 had been challenged by labor unions, and a judge in 2021 ruled in their favor and found it violates the California Constitution.

That ruling won't necessarily moot Uber and Postmates' lawsuit over the constitutionality of AB 5 because the unions are likely to ask the California Supreme Court to take up their challenge to Proposition 22.

In the federal lawsuit before the Ninth Circuit, Uber argued the California Legislature carved out so many exemptions to its labor classification requirement under AB 5, from lawyers and doctors, to barbers, furniture assemblers and dog walkers that can be hired with the Wag! app, that in the end Uber and other gig-economy giants were arbitrarily singled out to overhaul their business model.

That argument resonated with the panel, which agreed the plaintiffs had made a tenable case that their exclusion from the wide-ranging exemptions, including for comparable app-based gig companies, could be attributed to animus rather than reason.

"Plaintiffs plausibly allege that the primary impetus for the enactment of A.B. 5 was the disfavor with which the architect of the legislation viewed Uber, Postmates, and similar gig-based business models," U.S. Circuit Judge Johnnie Rawlinson, a Bill Clinton appointee, wrote for the panel. "The plausibility of plaintiffs’ allegations is strengthened by the piecemeal fashion in which the exemptions were granted, and lends credence to plaintiffs’ allegations that the exemptions were the result of 'lobbying' and 'backroom dealing' as opposed to adherence to the stated purpose of the legislation."

AB 5 was put together by Assemblymember Lorena Gonzalez, a San Diego Democrat who teamed up with a host of labor unions including the Service Employees International Union, California Labor Federation and State Building and Construction Trades Council, after the California Supreme Court had ruled a business must meet a three-prong standard referred to as the “ABC test” in order to classify a worker as an independent contractor.

AB 5 codified this ABC test so that companies must show that they do not directly control the worker, that the work falls outside its usual course of business and that the worker is “customarily engaged in an independently established trade” for the worker to be considered an independent contractor rather than an employee.

In its appeal, Uber said that after AB 5 passed Gonzalez tweeted that she had “fought so hard for #AB5 with no gig carveouts” and stated that, although she is open to further exemptions, "network companies" will never be exempted by any such “fix.”

Rawlinson found Gonzalez's disparaging comments about Uber and similar businesses supported the claim that these companies were singled out through AB 5. But the panel upheld the dismissal of the companies' and workers' due process and contract claims.

"We are gratified that the court affirmed the dismissal of most of the claims," the California Attorney General's Office said in an email. "We are reviewing the decision and assessing next steps. At the Attorney General’s Office, we will continue to defend laws that are designed to protect workers and ensure fair labor and business practices."

Theane Evangelis, an attorney representing Uber, said the Ninth Circuit had correctly reversed Judge Gee's dismissal of her clients’ equal protection claim. 

"The court emphasized that the Legislature unfairly targeted my clients, out of 'animus rather than reason,'" Evangelis said. "We look forward to pursuing our claim further in the district court."

U.S. Circuit Judge Danielle Forrest, a Donald Trump appointee, and Senior U.S. District Judge Morrison England Jr. a George W. Bush appointee sitting by designation from the Eastern District of California, rounded out the panel.

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