AB 5 Survives Uber and Postmates’ Constitutional Challenge – Employment Law Weekly

AB 5 Survives Uber and Postmates’ Constitutional Challenge

Concerned with the widespread misclassification of workers, the legislature enacted A.B. 5 in 2019. A.B. 5 codified the California Supreme Court’s Dynamex Operations W., Inc. v. Superior Ct., 416 P.3d 1, 5 (Cal. 2018) decision and extended the application of the ABC test beyond wage orders to other labor and employment legislation, including workers’ compensation, unemployment insurance, and disability insurance.

On December 30, 2019, Lydia Olson, Miguel Perez, Uber Technologies, Inc., and Postmates, Inc. jointly filed a complaint against the State of California and the Attorney General of California (collectively seeking declaratory, injunctive, and other relief based on their allegations that A.B. 5 violates the Equal Protection Clauses, the Due Process Clauses, and the Contract Clauses of the United States and California Constitutions. They sought a preliminary injunction to prevent Defendants from enforcing A.B. 5.

The district court denied Plaintiffs’ motion for preliminary injunctive relief. Plaintiffs appealed the district court’s denial of the preliminary injunction. In November 2020, shortly before the 9th Circuit Court of Appeals heard argument in that appeal, California voters approved Proposition 22, a ballot initiative that classifies rideshare and delivery drivers – like Plaintiffs Olson and Perez – as independent contractors, notwithstanding A.B. 5 or any other provision of law. Prop. 22 took effect on December 16, 2020, in accordance with the default rule provided by the California Constitution.

After Prop. 22 passed, but before the Court of Appeals issued a decision in the appeal of the preliminary injunction, Plaintiffs filed the operative Second Amended Complaint. Defendants moved to dismiss the Second Amended Complaint for failure to state a claim. The district court granted the motion. The district court determined that Plaintiffs’ new allegations concerning the amendments to A.B. 5 and Prop. 22 did not rescue their claims. Plaintiffs timely appealed that order.

A three-judge panel reversed in part, concluding that the district court erred by dismissing Plaintiffs’ Equal Protection claims. The panel concluded that Plaintiffs plausibly alleged that “the exclusion of thousands of workers from the mandates of A.B. 5 is starkly inconsistent with the bill’s stated purpose of affording workers the ‘basic rights and protections they deserve.’ “

Upon the vote of a majority of nonrecused active judges, a rehearing en banc was granted and the three-judge panel decision. Olson v. California, 88 F.4th 781 (9th Cir. 2023).was vacated It then conducted a review de novo of the district court order granting a motion to dismiss for failure to state a claim.

“We must decide whether A.B. 5’s differential treatment of app-based work arrangements in the transportation and delivery service industry, on the one hand, and app-based work arrangements in other industries, on the other hand, survives rational basis review. In other words, we must determine whether it was rational for the California legislature to apply one test to determine the classification of Uber drivers and a different test to determine the classification of dogwalkers who provide services through Wag!, the “Uber for dogs.”

Under the deferential rational basis standard, the Court was required to approach A.B. 5 with “a strong presumption of validity,” and will invalidate it only if Plaintiffs negate “every conceivable basis” which might justify the lines it draws.

“Plaintiffs have failed to carry that burden here. There are plausible reasons for treating transportation and delivery referral companies differently from other types of referral companies, particularly where the legislature perceived transportation and delivery companies as the most significant perpetrators of the problem it sought to address – worker misclassification.”

Under the deferential rational basis standard, the en banc court in the published opinion of Olson et.,al, v State of California et. al. 21-55757 (June 2024) concluded that there were plausible reasons for treating transportation and delivery referral companies differently from other types of referral companies, particularly where the legislature perceived transportation and delivery companies as the most significant perpetrators of the problem it sought to address- worker misclassification.

That A.B. 5 may be underinclusive because it does not extend the ABC test to every industry and occupation that has historically contributed to California’s misclassification woes does not render it unconstitutionally irrational.

The en banc court did not disturb the prior panel’s disposition of plaintiffs’ Due Process, Contract Clause, and Bill of Attainder claims. Accordingly, the en banc court reinstated Parts III.B, III.C, and III.D of Olson v. California, 62 F.4th 1206, 1220–23 (9th Cir. 2023).

AB 5 Survives Uber and Postmates’ Constitutional Challenge

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