9th Circuit says California rules for Uber are justified

A California law that classifies Uber and other taxi drivers and delivery workers as employees rather than independent contractors is constitutional, the U.S. 9th Circuit Court of Appeals ruled Monday.

The decision's effect on the companies' operations and California's broader gig economy was not immediately clear, given ongoing litigation over a subsequent voter-backed proposal that excluded app-based drivers from employee classification.

Still, legal experts say the ruling is important, in part because it affirms the right of state lawmakers to regulate major industries and corporations without jeopardizing the “equal protection” rights of such companies under the U.S. Constitution.

“From a long-term and legal perspective, it's not just about Uber, that's the key takeaway here,” said Veena Dubal, a law professor at UC Irvine who studies the intersection of law, labor and technology.

The decision on the law, known as Assembly Bill 5, could carry weight as other states, including Massachusetts, battle with Uber and similar companies over regulating driver pay and classification, said Ryan Wu, an attorney at Capstone Law .

“This case gives lawmakers greater certainty that AB5-type legislation will survive constitutional challenges,” Wu said. “It puts them on firmer ground.”

The decision by an 11-judge panel from the 9th Circuit reverses a decision made last year by a three-judge panel from the same court. The smaller panel found that lawmakers had acted hostile toward Uber, Postmates and other ride-hailing and delivery services by crafting a law specifically targeting them and not other app-based companies.

In Monday's opinion, Judge Jacqueline H. Nguyen wrote that this was not the case and that lawmakers had legitimate reasons for passing the 2019 law.

“There are plausible reasons for treating transportation and delivery referral companies differently than other types of referral companies, especially when the Legislature viewed transportation and delivery companies as the primary perpetrators of the problem it sought to address: worker misclassification,” Nguyen wrote.

Lawyers for the companies said they were considering their legal options, including whether to appeal the decision to the U.S. Supreme Court.

But they downplayed the impact of the ruling on their operations in the state, given the 2020 passage of Proposition 22, which allowed their drivers to be classified as contractors.

Theane Evangelis, an attorney for the companies, said AB5 “threatened to take away flexible work options from hundreds of thousands of Californians,” but voters had “rejected” such regulations with the proposal.

Noah Edwardsen, spokesman for Uber, said Monday's decision “does not in any way change the status of the law in California.”

Labor leaders took a different position. Lorena Gonzalez, chief executive of the California Labor Federation and a former lawmaker who authored AB5, called Monday's decision “a victory for all workers in the state, but especially for the chronically misclassified workers in sharing and delivery jobs.”

Gonzalez said the smaller panel's decision last year “really put all of labor law at risk,” and Monday's ruling put that right. She said AB5 continues to ensure California workers are protected, not just at taxi companies but in many employment sectors.

Gonzalez also noted that the fate of Proposition 22 is uncertain, and that it could be overturned by the California Supreme Court, which is weighing its legitimacy.

The offices of Gov. Gavin Newsom and Atty. Gen. Rob Bonta did not immediately respond to requests for comment Monday.

The ruling is the latest in a tangle of court rulings over who can be treated as an independent contractor and who can be treated as an employee.

AB5 has led to numerous legal challenges from freelancers and trucking companies, which have so far been unsuccessful.

Proposition 22, a ballot measure passed by nearly 60% of state voters in 2020, exempts app-based transportation services like Uber from AB5. Ride-hail companies poured huge amounts of money into campaigns in support of the proposal.

Regardless of what happens with Proposition 22, Nguyen noted, the federal decision is relevant because the measure was not retroactive, and there are ongoing state claims against Uber and Postmates for violating AB5 before 2020 — including by misclassifying drivers .

A federal judge in California ruled this last year Grubhub misclassified it a former delivery driver, Raef Lawson, as a self-employed person and therefore wrongly denied him the minimum wage.

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