9th Circuit denies Uber's claim against AB 5, upholds state's stance on gig workers

The 9th U.S. Circuit Court of Appeals, reversing a three-judge panel, ruled Monday that Uber Technologies Inc. and its subsidiary Postmates do not have an equal protection claim against the state over legislation, AB 5, that they said targeted their businesses by requiring them to treat drivers as full-time employees.

"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," 9th Circuit Judge Jacqueline H. Nguyen, an appointee of President Barack Obama, wrote for an 11-member en banc panel.

The 11-0 decision overruled a decision by a three-judge panel last year that allowed Uber's lawsuit against the state to move forward. While the state drew a favorable panel of eight appointees of Democratic presidents, none of the three Republican appointees dissented. Olson et al. v. State of California et al., 2024 DJDAR 5002 (9th Circ., filed July 20, 2021).

The decision's impact may be limited for drivers who work for app-based companies if the state Supreme Court upholds Proposition 22, an initiative approved by voters in 2020 that allows Uber Technologies Inc., Lyft Inc. and DoorDash Inc. to classify its drivers as independent contractors.

The state Supreme Court heard arguments on Prop. 22 in May, when justices expressed doubt about striking down the entire law as unconstitutional. A decision in the state case is pending. Castellanos v. State of California et al., S279622 (Cal. S. Ct., filed April 21, 2023).

Scott A. Kronland of Altshuler Berzon LLP, who represents app company drivers challenging Prop. 22, said in an email that even if the initiative survives, Monday's decision could affect litigation covering the time between the passage of AB 5 in September 2019 and Prop. 22 the following year.

"The en banc Olson decision, however, has much broader significance," he wrote in an email. "For example, the trucking industry has a pending equal protection challenge to AB 5 that relied in the panel decision in Olson."

Theane D. Evangelis, a Gibson, Dunn & Crutcher LLP partner who represents Uber, downplayed the ruling.

"Fortunately, in Proposition 22, California voters rejected AB 5 because it 'threatened to take away the flexible work opportunities of hundreds of thousands of Californians,'" she wrote.

In the federal case, Central District Chief Judge Dolly M. Gee, an Obama appointee, denied a motion sought by Uber and other plaintiffs for a preliminary injunction. A 9th Circuit three-judge panel reversed her decision in March 2023.

"Plaintiffs plausibly allege that their exclusion from wide-ranging exemptions, including for comparable app-based gig companies, can be attributed to animus rather than reason," wrote 9th Circuit Judge Johnnie B. Rawlinson, an appointee of President Bill Clinton.

But during oral arguments in March, several 9th Circuit judges on the en banc panel questioned whether they had the authority to question the state Legislature when it was making economic policy, especially when Uber and Postmates employed so many more people than companies that got exemptions.

Deputy Solicitor General Samuel T. Harbourt hammered on the same theme, saying courts should stay out of the Legislature's decision of which industries to exempt because such decisions affect entire industries, not just Uber.

The Biden administration sided with the state, dismissing Uber's complaints about statements made by the bill's sponsor, then-Assemblywoman Lorena Gonzalez, D-San Diego, and other legislators.

Evangelis, during oral arguments, dismissed those arguments, noting that dog walkers, movers and the newspaper industry got exemptions while Uber did not. "The state went after us like a heat-seeking missile," she told the limited en banc panel.

But Nguyen noted that even companies, such as the dog walking service, exempted by the Legislature under AB 5 must satisfy 11 different criteria to qualify.

"The limited availability of the exemption in the referral agency industry reflects the legislature's rational choice to preserve the traditional distinctions between independent contractors and employees and leave the Borello test in place only for those workers who faced little risk of misclassification," she wrote.