9th Circuit Revives Uber Constitutional Challenge to AB-5 – Employment Law Weekly

9th Circuit Revives Uber Constitutional Challenge to AB-5

A.B. 5, as amended, codified the “ABC test” adopted by the Supreme Court of California in Dynamex Operations West, Inc. v. Superior Court of Los Angeles, 4 Cal. 5th 903 (2018), to categorize workers as employees or independent contractors for the purposes of California Labor and Unemployment Code provisions..However, A.B. 5 exempted a broad swath of workers from the Dynamex presumption.

These statutory exemptions included: California licensed insurance businesses or individuals, physicians and surgeons, dentists, podiatrists, psychologists, veterinarians, lawyers, architects, engineers, private investigators and accountants; registered securities broker-dealers and investment advisers; direct sales salespersons; commercial fishermen working on American vessels for a limited period; marketers; human resources administrators; travel agents; graphic designers; grant writers; fine artists; payment processing agents; certain still photographers or photo journalists; freelance writers, editors, or cartoonists; certain licensed estheticians, electrogists, manicurists, barbers or cosmetologists; real estate licensees; repossession agents; contracting parties in business-to-business relationships; contractors and subcontractors; and referral agencies and their service providers.

Within a year of its enactment, A.B. 5 was amended by A.B. 170 and A.B. 2257. Both bills exempted even more workers from the Dynamex presumption.

Lydia Olson, Miguel Perez, Uber, Inc. and Postmates, Inc. filed a law suit in federal court to enjoin the State of California and the Attorney General of California , from enforcing California Assembly Bill 5 against them. The trial court denied a preliminary injunction, and the plaintiffs appealed. The 9th Circuit Court of Appeals heard argument in that case on November 18, 2020. However, on November 3, 2020, shortly before argument, Proposition 22 was adopted through California’s ballot initiative process.

Shortly before it heard argument on Plaintiffs’ appeal of the district court’s order denying their motion for a preliminary injunction, Plaintiffs filed their Second Amended Complaint. The Second Amended Complaint updated Plaintiffs’ original claims to incorporate the amendments to A.B. 5 made by A.B. 2257. It alleged that A.B. 5, as amended, violates state and federal Equal Protection Clauses, Due Process Clauses, Contract Clauses, and Bill of Attainder Clauses of the U.S. Constitution

Defendants moved to dismiss Plaintiffs’ Second Amended Complaint for failure to state a claim on which relief could be granted, and the district court granted Defendant’s motion in its entirety, with prejudice. The plaintiffs then appeal the district court’s orders denying their motion for a preliminary injunction and dismissing their Second Amended Complaint. The trial court was reversed in part, affirmed in part, and remanded in the published case of Lydia Olson, et al v. State of California – 21-55757 (March 2023).

The 9th Circuit panel first held that, even under the fairly forgiving rational basis review, Plaintiffs plausibly alleged that A.B. 5, as amended, violated the Equal Protection Clause for those engaged in app-based ride-hailing and delivery services. Thus, Plaintiffs plausibly alleged that the primary impetus for the enactment of A.B. 5 was the disfavor with which the architect of the legislation – Assemblywoman Lorena Gonzalez – viewed Uber, Postmates, and similar gig-based business models.

Additionally, Plaintiffs plausibly alleged that their exclusion from the wide-ranging exemptions, including for comparable app-based gig companies, could be attributed to animus rather than reason. The district court therefore erred by dismissing Plaintiffs’ equal protection claim.

The panel held that the district court correctly dismissed Plaintiffs’ due process claims because Plaintiffs failed to plausibly allege that A.B. 5, as amended, completely prohibited them from exercising their “right to engage in a calling.” In addition, Plaintiffs’ allegations did not plausibly allege that A.B. 5, as amended, would bar plaintiffs Olson and Perez from continuing their work as “business owners in the sharing economy” with network companies that were exempted from A.B. 5, as amended.

The panel held that A.B. 5, as amended, did not violate the Contract Clause because it neither interfered with Plaintiffs’ reasonable expectations nor prevented them from safeguarding or reinstating their rights. Plaintiffs’ Bill of Attainder claims likewise failed because Plaintiffs did not plausibly allege that A.B. 5, as amended, inflicted punishment on them.

Addressing the district court’s denial of Plaintiffs’ motion for a preliminary injunction, the panel noted that the district court’s order was based on allegations contained in the Initial Complaint, which did not include Plaintiffs’ allegations regarding facts – namely the passage of A.B. 2257 and Proposition 22 – that did not exist when the Initial Complaint was filed.

The panel therefore remanded the case for the district court to reconsider Plaintiffs’ motion for a preliminary injunction, considering the new allegations contained in the Second Amended Complaint.

9th Circuit Revives Uber Constitutional Challenge to AB-5

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