9th Circuit Revives Constitutional Challenge to Employee Classification Law

Michelle Berger

Michelle Berger is a student at Harvard Law School.

As Will reported this weekend, a unanimous Ninth Circuit panel reinstated Uber and Postmates’s constitutional claim against California’s A.B. 5 on Friday. The panel remanded the case back to district court to reconsider enjoining the law in light of the decision. This decision represents the latest development in efforts by large employers of app-based workers to resist classifying those workers as employees.

Companies such as Uber assert that classifying their workers as independent contractors is essential to their business model. But others have observed that workers classified as independent contractors lack a slew of legal protections, making them vulnerable to exploitation. Recent years have seen hundreds of app-based workers — such as Uber and Lyft drivers — protesting for better working conditions and legal protections.

In its 2018 decision in Dynamex, the Supreme Court of California adopted the “ABC test” to classify workers for the purposes of California wage orders. The ABC standard adopts a presumption that a worker is an employee. To refute that presumption, the employer must demonstrate each of three factors: (A) that the worker 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 worker performs work that is outside the usual course of the hiring entity’s business; and (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed. The “ABC test” — in most instances — requires employers to either classify their workers as employees or relinquish significant control over them and otherwise recalibrate their business model to accord with the ABC factors.

The next year, in 2019, the California Legislature passed Assembly Bill 5 (“A.B. 5”) to codify Dynamex and clarify its application to other California employment laws. The Legislature’s stated purpose in enacting A.B. 5 was 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 provided, however, that the pre-Dynamex standard would apply to some categories of workers. Subsequent amendments added further exemptions. But there was never any doubt that A.B. 5 (and the Dynamex standard it codified) would apply to large employers of app-based gig workers, such as Uber, Lyft, DoorDash, and Postmates. The Los Angeles Times reported, for example, that A.B. 5 sponsor Assemblywoman Lorena Gonzales was “open to” A.B. 5 exemptions, “but not for app-based ride-hailing and delivery giants.”

The large rideshare and delivery companies are pursuing multiple paths to prevent A.B. 5 from affecting their businesses. For example, as Jacqueline reported last week, companies including Uber and Lyft spent $200 million promoting ballot initiative Proposition 22 (“Prop. 22”). Prop. 22 exempts transportation and delivery workers from A.B. 5. As Jacqueline (and I) reported, a California appeals court largely sustained Proposition 22 last week against state constitutional challenges. Its fate remains uncertain as the plaintiffs weigh whether to ask the Supreme Court of California to review the decision.

In addition to lobbying for Prop. 22, Uber and Postmates challenged A.B. 5 in federal court. At the end of 2019, Uber, Postmates, and two individual workers moved in the Central District of California to enjoin enforcement of A.B. 5. The plaintiffs’ primary claim was that A.B. 5 violated the Equal Protection Clause because it lacked a rational basis for treating Uber and Postmates differently from other, similarly-situated companies. Instead, the plaintiffs argued, only animus toward their companies could explain the legislative line-drawing in A.B. 5.

In 2020, the district court denied the motion. Evaluating the likelihood of success on the merits for the Equal Protection claim, the district court observed that A.B. 5 implicates neither a fundamental right nor a suspect classification; thus, the court applied rational basis review. The court credited the Legislature’s statement of purpose, which asserted state interests in protecting exploited workers to address the erosion of the middle class, as affording the Legislature a plausible reason for enacting A.B. 5. The court further found that there were conceivable differences between the plaintiffs’ and other similarly-situated companies, and also declined to find that A.B. 5’s exemptions went so far as to contradict the whole purpose of the law itself. The court explicitly rejected the plaintiffs’ animus argument, citing the Supreme Court for the proposition that “reform may take one step at a time.” The court acknowledged evidence that legislators specifically targeted Uber. However, the court noted, because gig economy companies are not a suspect class, animus alone — without an illegitimate purpose — would not be enough for a court to second-guess the legislature. The district court also found no merit to the plaintiff’s other constitutional claims.

The plaintiffs appealed. A three-judge panel of the Ninth Circuit issued its opinion in the case on Friday. The panel, reasoning that the plaintiffs advanced a colorable claim under the Equal Protection Clause of the Federal and California constitutions, held that the district court erred in dismissing the suit on the pleadings. The panel affirmed the district court’s analysis with respect to the plaintiffs’ due process clause and Contract Clause claims and rejected the plaintiffs’ Bill of Attainder Clause claim. The panel remanded the case to the district court for reconsideration of the ruling on the injunction.

In evaluating the plaintiffs’ Equal Protection claims, the panel, like the district court, applied rational basis review. However, the panel found that the plaintiffs plausibly alleged a lack of rational basis for A.B. 5’s exemptions for some companies and not others. In particular, the panel observed that “app-based gig companies that perform errand services, such as TaskRabbit and Wag!, [] have business models that are nearly identical” to the plaintiffs’ businesses. “There is no indication,” the opinion continues, “that many of the workers in exempted categories … are less susceptible to being ‘exploited by being misclassified as independent contractors.’” Moreover, the panel found that the plaintiffs plausibly alleged animus as the reason for their disparate treatment under A.B. 5. The panel considered as evidence “numerous [] comments” by Assemblywoman Gonzalez “repeatedly disparaging Plaintiffs.” Citing the Supreme Court’s proposition inthe Moreno case that a legislature’s “desire to harm a politically unpopular group cannot constitute a legitimate governmental interest,” the panel found the district court erred in dismissing the Equal Protection claim.

Reacting to the decision, per Bloomberg Law, counsel for the unions that filed an amicus brief in support of A.B. 5 said that the panel’s opinion “is contrary to decades of equal protection precedent, and fundamentally threatens the authority of legislatures to address abuses of workers in particular industries.” In their brief, the unions cited the Supreme Court in the Williamson v. Lee Optical case observing that “the day is gone” when courts “strike down state laws, regulatory of business and industrial conditions, because they may be unwise, improvident, or out of harmony with a particular school of thought.” The plaintiffs’ argument in this case, the unions’ brief continued, would “return to Lochner-era review of economic legislation.”

Per Reuters, the California Attorney General stated that his office is reviewing the decision, noting that the office “will continue to defend laws that are designed to protect workers and ensure fair labor and business practices.” If history is any guide, the legal and policy battle over the classification of California’s gig workers is likely far from over.

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