Contingent workforce programs tapping into gig economy platforms to find talent — or thinking of doing so — received encouraging news last week in a couple of court decisions. A US appeals court in San Francisco on March 17 revived a lawsuit brought by Uber Technologies Inc. and subsidiary Postmates Inc. against AB 5, a California law that aims to get tough on independent contractor misclassification.
Friday’s ruling by the 9th US Circuit Court of Appeals followed an appeals court ruling on March 13 that found Prop. 22, which came about after the California Legislature passed AB 5, is enforceable. The ballot initiative, which passed in 2020, carved out exemptions to the AB 5 requirements for Uber, Lyft and other app-based delivery services. It had been ruled unconstitutional in 2021.
The 9th Circuit ruling on March 17, meanwhile, found that AB 5 is unconstitutional because it improperly singles out app-based transportation businesses while exempting many other industries, according to Reuters, which called the ruling “a major win for app-based services that heavily rely on contractors.”
In Friday’s unanimous decision, the three-judge panel ruled the companies had made a plausible case that AB 5 — which became law in 2019 and requires the apps 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, Courthouse News reported. The panel sent the case back to US 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.
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 in the end Uber and other gig-economy giants were arbitrarily singled out to overhaul their business model.
The primary reason for the reversal were the words of AB 5’s key sponsor, Lorena Gonzalez, who was a state assemblywoman when the law was passed but is now the chief officer of the California Labor Federation, FreightWaves reported. Gonzalez led the effort to put into the law the ABC test that defines whether a worker is an independent contractor or an employee, with the test leaning heavily toward a finding that a worker should be classified as an employee.
In finding that AB 5 violated the equal protection clause, the appellate court noted that Gonzalez, after individual problems in certain industries arose, was reported by the Los Angeles Times to have said that “she is ‘open to changes in the bill next year, including an exemption for musicians, but not for app-based ride-hailing and delivery giants’” (court’s italics). The appellate court also agreed with the allegation in the plaintiffs’ filing that numerous statements by Gonzalez “disparaged” the app-based industry.
Despite last week’s rulings, it is possible that neither will immediately impact the gig platforms, as the state of California and a labor union that challenged Prop. 22 are likely to appeal the decisions.