California Law Upholding Worker Classification Ruled Constitutional by Appeals Court
A U.S. appeals court has recently ruled that California’s Assembly Bill 5 (AB5), which classifies transportation gig workers and delivery drivers as employees rather than independent contractors, is constitutional. Uber, a prominent ride-hailing service, had challenged the law, but the court upheld its constitutionality.
The ruling by an 11-judge panel of the Ninth U.S. Circuit Court of Appeals in San Francisco affirms a lower court ruling that found Uber failed to demonstrate that AB5 unfairly targeted app-based transportation companies while exempting other industries. In the appeals court’s opinion, Judge Jacqueline Nguyen stated that there are valid reasons for treating transportation and delivery referral companies differently from other types of referral companies that use gig workers. This is particularly true when these companies are seen as significant contributors to the issue of worker misclassification that the legislation seeks to address.
AB5, approved in 2019, aims to protect workers at app-based companies like Uber, Lyft, and DoorDash by providing them with various benefits and protections such as minimum wage, overtime pay, expense reimbursements, and workplace protections. The law reclassifies many contract or freelance workers as employees, ensuring they are entitled to these benefits.
The law also includes the “ABC test,” which establishes three legal criteria for defining independent contractors. Workers who fail this test must be classified as employees. The criteria are: (A) the work is not controlled by the hiring entity; (B) the work is outside the usual course of the hiring entity’s business; and (C) the worker already performs similar work independently.
Uber filed a lawsuit against AB5 soon after it was passed, arguing that the legislation violated their rights under the equal protection clause of the state and U.S. constitutions. The company contended that it is a technology business that does not hire drivers or delivery persons, and therefore should not be subject to AB5. Uber claimed that enforcing AB5 would harm independent service providers who prefer the flexibility and entrepreneurship that platform-based work offers.
In March 2023, an appeals court initially struck down AB5, stating that it violated equal protection because it unfairly singled out app-based transportation businesses while exempting other industries. However, the recent ruling on June 10 reversed this decision. The court found that the exemptions in AB5 were sufficient to keep Uber’s challenge alive and ultimately upheld the law’s constitutionality.
This ruling has significant implications for the ongoing debate over worker classification and the potential for more companies to be required to classify their workers as employees. It also comes in the wake of Proposition 22, a voter-approved law in November 2020 that allowed ride-hailing and delivery app companies to exclude workers in California from certain protections and benefits under AB5. Proposition 22 is currently facing legal challenges, with arguments being heard regarding its constitutionality.
While the recent ruling leaves AB5 intact, Uber drivers and couriers remain independent contractors due to Proposition 22, which preserves their flexibility while providing them with new benefits. This decision does not change the current status of the law in California.
Overall, this ruling reinforces the importance of ensuring worker protections and benefits in the gig economy. It highlights the need for legislation like AB5 to address worker misclassification and ensure that workers have access to essential rights and benefits.
