Monday, June 17, 2024

Court revives Uber/Postmates fight against AB5 for app-based drivers

A lawsuit against AB5 brought by Uber, Postmates and two of their gig drivers failed in a lower federal court in California in 2020 but has been partially revived on appeal.

And it appears that the primary reason for the reversal were the words of AB5’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. 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.

The partial reversal of the lower court case was handed down Friday by a three-judge panel of the 9th U.S. Circuit Court of Appeals. With the reversal, the efforts by Uber, Lyft and in this case Postmates pushing back against implementing AB5 for app-based drivers scored two major victories in one week.

On March 13, a state appellate court reversed a lower court decision that had held Prop 22, a successful 2020 referendum backed by Uber (NYSE: UBER) and Lyft (NASDAQ: LYFT) that blocked AB5 from being implemented against app-based drivers, was unconstitutional. That case was brought by the Service Employees International Union, which has a large contingent of government workers, and several app-based drivers. One of the defendants in that case is the state, acting in its role as defender of the vote of the people in 2020.

While the legal case against Prop 22 focused on such issues as its impact on worker compensation and whether the referendum’s wording conflicted with various state statutes — that case is in the state courts, not the federal judiciary — the unanimous decision on Uber/Postmates by the three-judge panel of the 9th Circuit turned more on raw politics.

The immediate effect of the decision is to send the Uber/Postmates case back to the U.S. District Court for the Central District of California.

Uber and Postmates argued in their original lawsuit filed in the wake of AB5’s passage that app-based platforms were being singled out. The plaintiffs argued that their due process rights had been violated, that the law was a “bill of attainder” directed at one particular type of company or individual, and that AB5 violated state contract law. Those and other arguments were rejected by the lower court, and the appellate court concurred with the lower court on those points.

But it was the Uber/Postmates charge that AB5 violated the equal protection clause of the Constitution that the appellate court agreed with, reversing the lower court. And it was the politics that led up to AB5’s passage that was cited as the key reason. 

One of the central arguments of Uber and Postmates centers on the long list of exemptions for specified industries that were approved either in the original AB5 legislation or in subsequent laws. Many of those exemptions were added to the list after some initially nonexempt industries found themselves in chaos under AB5. (Foreign language translators were a major example.) The appellate court decision lists all the groups exempted in what amounts to almost a roll call.

And that is where Gonzalez comes in. In finding that AB5 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.

“We are persuaded that these allegations plausibly state a claim that the ‘singling out’ of plaintiffs effectuated by AB5 … ‘fails to meet the relatively easy standard of rational basis review,’” the court wrote, citing language in an earlier precedent. 

Other app-based workers received an exemption, such as those with Task Rabbit, a company whose workers are able to perform a variety of services and errands for their users, or Wag!, a dog-walking and care service. Those companies’ business models “are nearly identical to Uber and Postmates,” the court wrote. “There is no indication that many of the workers in exempted categories, including those working for the app-based gig companies that are exempted, are less susceptible to being ‘exploited by being misclassified as independent contractors,’” the court added, pulling the latter quote directly from AB5.

While Gonzalez is often outspoken on Twitter, she was uncharacteristically quiet Friday about the appellate court decision. The one tweet posted that day by her that could have been spurred by the decision was her declaration that “our system is broken.” There was no further information in the tweet about what constituted “our system” or what was “broken.”

Our system is broken.

— Lorena Gonzalez Fletcher (@LorenaSGonzalez) March 18, 2023

Greg Feary, a partner with the trucking-focused law firm Scopelitis, said the precedent laid down by the appellate court might become an issue in trucking if the California Trucking Association’s anti-AB5 case makes it back to that level. An earlier injunction against AB5 handed down by a lower court at the end of 2019 was overturned by the 9th Circuit in April 2021, and after the Supreme Court chose last year not to review that decision, AB5 was implemented in the state’s trucking industry. But the initial CTA case went back to the district court. The plaintiffs in that case have filed their initial comments. 

It has been conventional wisdom that Gonzalez was targeting two industries with AB5: app-based platforms and trucking. But there has not been a case brought by trucking interests against AB5 that cited anything Gonzalez said. The initial CTA case focuses on such issues as the interstate commerce clause and questions of state versus federal jurisdiction.

“I think [the Uber/Postmates appeal decision] might take on an additional argument in front of the 9th Circuit,” Feary said, a reference to the possibility that the ongoing CTA case may make it back there again. “People will try to take another look at her statements from the beginning to where we are today, and look at the whole issue of all these carve-outs and why certain industries weren’t carved out.”

The ABC test that became part of legal precedents and then AB5 has been problematic for trucking and app-based drivers primarily because of the B prong. The B prong states that to be classified as an employee, a worker “performs work that is outside the usual course of the hiring entity’s business.” A driver of a truck contracted for by a trucking company, or a driver moving people or food for a business whose primary business is moving people or food can run into that provision of the B prong. 

One key difference between the Uber/Postmates case and that of the CTA: There is no preliminary injunction in the case brought by Uber, Postmates and two of their respective drivers. Instead, the case was kicked back to the district court but the appellate court did not order that implementing AB5 against app-based drivers — even though Prop 22 may make that step technically moot even if it was not found legally moot — be blocked while the Uber/Postmates case gets another hearing.

There is no injunction in the CTA case, but there was. Now that the case is back before the lower court, it is possible that another one could be handed down at some point.

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