Gig companies, Uber and Postmates, successfully obtained a revival of their claim in federal court alleging that California A.B. 5 unfairly disadvantages app-based ride and delivery services. The U.S. Court of Appeals in Olsen v. State of California, No. 21-55757, 2023 WL 2544853, at *2 (9th Cir. Mar. 17, 2023). found that the plaintiffs "plausibly alleged" that the main motivation behind A.B. 5 in the California legislature was to disadvantage companies like Uber, Postmates and similar gig-based businesses in violation of equal protection.
A.B. 5 codified the "ABC Test" established by the Supreme Court of California in the Dynamex Operations West, Inc. v. Superior Court of Los Angeles, 4 Cal.5th 903 (2018), which provides a test for courts to determine the classification of workers as independent contractors or employees. The court found that A.B. 5 and its amendment violated the Equal Protection Clause as to app-based ride and delivery services and that the primary motivation behind the A.B. 5 legislation was one reflecting the disfavor of that body on Uber, Postmates and similar gig-type business models. Further, the court found that the Plaintiffs plausibly alleged that their specific exclusion from the exemptions added in the amendment to the law were also a product of "animus rather than reason." The court found that the district court incorrectly dismissed Plaintiffs' equal protection claim, but was correct in dismissing the claims brought regarding violations of due process as well as the Contracts Clause, and Bills of Attainder.
The Impact of the Dynamex Decision
In Dynamex the court adopted the "ABC Test" as a means to distinguish between employees and independent contractors in regard to California wage orders. The ABC Test provides that workers are presumed to be employees and only classified as independent contractors if the worker meets three criteria:
- The worker is free from the control and direction of the hiring entity in connection with the performance of the work and in fact; and
- The worker performs work that is outside the usual course of the hiring entity's business; and
- The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
Statutory History of A.B. 5
A.B. 5 was passed by the California legislature in 2019. The stated purpose of the law was to "ensure workers who are currently exploited by being misclassified as independent contractors instead of recognized as employees have the basic rights and protections they deserve under the law, including a minimum wage, workers' compensation if they are injured on the job, unemployment insurance, paid sick leave and paid family leave." In effect, A.B. 5 codifies the Dynamex ABC Test as well as expanding Dynamex's scope to not only wage orders, but also to the California Labor and Unemployment Insurance Codes. In addition, in an amendment to A.B. 5, a number of professions were exempted from the statute.
Factual Background
The passage of A.B. 5 was largely in response to concerns regarding the gig economy and its impact upon workers' rights. Once legislator tweeted, "I believe all workers should benefit from the hard-fought protections won by unions- just because your employer uses a smartphone app, doesn't mean they should be able to misclassify you as an independent contractor." Buffy Wicks, @BuffyWicks, TWITTER (Sept. 7, 2019, 6:57 AM).
Postmates is a network company that conducts its operations online and provides local delivery of all kinds of items from food to groceries to household items. When an online request is made through the Postmates app, a local courier will fulfill the request and deliver it. Postmate couriers may choose to accept online requests or decline them. In order to be included as a courier on the Postmates app, participants must complete a "Fleet Agreement." This agreement defines the relationship of the courier and Postmates as independent contractor and principal. The couriers may engage jobs on the app as much or as little as they choose- they do not have set hours or a minimum hour requirement.
Uber maintains a similar set-up as an app-based service for rides as well as the delivery of goods and services. In order to participate as a driver on the Uber app, an individual must first sign a "Platform Access Agreement," which clearly states that the relationship between the parties is "solely as independent enterprises and this is not an employment agreement and you are not an employee." Like Postmates, Uber drivers are free to engage riders through the app as much or as little as they please. Drivers also use their own cars and are responsible for the maintenance and upkeep of their own vehicles.
Plaintiffs filed the Initial Complaint and Motion for a Preliminary Injunction on December 30, 2019. The complaint claimed that A.B. 5 was unconstitutional and requested declaratory and injunctive relief. They asserted that the law was a violation of the Equal Protection Clause, Due Process and the Contract Clause as well as a Bill of Attainder. The district court denied Plaintiffs' motion for preliminary injunctive relief. The court reasoned that A.B. 5 was related to a legitimate state interest and did not target the gig economy, or come from a position of animus against these types of workers in violation of their equal protection rights. Specifically the district court concluded that, "Although the record does contain some evidence that A.B. 5 targeted Uber, Postmates and other gig economy companies….the evidence did not rise to the level of demonstrating an equal protection violation where the statute addresses legitimate concerns of deleterious misclassification of workers in many industries, not just the gig economy." It also held that A.B. 5 did not deprive gig workers of their right to a career, which would be in violation of due process. The district court stated that in order for a statute to infringe upon a "vocational liberty interest it must completely prohibit a plaintiff from engaging in a calling." It reasoned that even if Plaintiffs were reclassified as employees they could still continue their work for Uber or Postmates under the new classification. Finally, the district court found that A.B. 5 did not unconstitutionally impair Plaintiffs’ contracts or act as a Bill of Attainder.
Equal Protection Claims
The Equal Protection Clause "prohibits states from denying any person within its jurisdiction the equal protection of the laws." Am. Soc'y of Journalists & Authors v. Bonta, 15 F.4th 954, 964 (9th Cir. 2021). If the law in question does not involve a delineated suspect class, semi-suspect class, or a fundamental right, the court will employ rational basis review in addressing the challenge. As the "right to pursue a career" has never reached the level of being designated as a fundamental right by the courts, rational basis review was appropriate in the case at hand. Dittman v. California, 191 F.3d 1020, 1031 n.5 (9th Cir. 1999).
In utilizing a rational basis review the court will examine whether the statute advances a legitimate state interest and provides a rational connection between that interest and the statute. "For a plaintiff asserting a claim for violation of equal protection under a rational basis standard, they must negate every conceivable basis which might have supported the distinctions drawn." American Soc'y of Journalists & Authors, 15 F.4th at 965.
Here the Plaintiffs argue that the primary impetus behind A.B. 5 was the disfavor of some legislators against gig-based businesses like Uber and Postmates. Although the law purports to "ensure that workers who are currently exploited by being misclassified as independent contractors instead of recognized as employees have the basic rights and protections they deserve." A.B. 5 §1(e), Plaintiffs push back on this purported interest by pointing out that the bill excludes thousands of workers from these mandates and instead promotes the rights of certain workers in more of a piecemeal method. The Plaintiffs argue that these exemptions are a result of "lobbying and back-room deals" that resulted in the favoring of some groups over others. Plaintiffs plausibly alleged that there was no evidence that workers included in the exempted categories are less likely to be misclassified as independent contractors than those who were not exempted.
In addition, the Plaintiffs point out that other gig-based model businesses were included in the exemptions while they were not. They argue that the only basis for this can be one of animus "rather than reason." Plaintiffs argue that they were singled out and targeted for punishment by their nay-sayers through the passage of this bill. Given the numerous instances of California legislators tweeting, and speaking openly in a disparaging manner about the type of business that Postmates and Uber conduct, the court here found that the Plaintiffs plausibly alleged a violation of the Equal Protection clause given the circumstances and climate surrounding its passage. "A legislative desire to harm a politically unpopular group cannot constitute a legitimate government interest." United States Dep't of Agric. v. Moreno, 413 U.S. 528, 534, 538 (1973). Therefore, the court held that the district court erred in the dismissal of Plaintiffs' claims pertaining to equal protection.
Due Process Claims
The court was not as amiable when it came to the Plaintiffs' due process claims. "A threshold requirement to a substantive or procedural due process claim is the plaintiff's showing of a liberty or property interest protected by the Constitution." Dittman, 191 F.3d at 1029. Precedent also informed the court as a long line of cases make it clear that a violation of a claimant's liberty interest is only present in the circumstance where the right to engage in a calling or particular profession is prohibited. Id.
Postmates and Uber failed to plausibly allege that their due process rights were violated by the passage of A.B. 5. Although it reclassifies employees and perhaps unfairly exempts some types of workers and not others, it does not ban anyone from engaging in gig-based work as a whole. "People do not have a liberty interest in a particular employer," but rather in the right to pursue a particular profession as a whole. Blantz v. Cal Dep't of Corr. & Rehab., 727 F.3d 917, 925 (9th Cir. 2013). Reclassification does not prevent couriers and delivery drivers from engaging in their profession. It only prevents them from doing so while classified as independent contractors in some situations. Therefore, the district court was correct in denying Plaintiffs' due process claims.
Contracts Clause Claims
The Contracts Clause provides that a state law is in violation of its provisions if:
- It operates as a substantial impairment of a contractual relationship, and
- It is not drawn in an appropriate and reasonable way to advance a significant and legitimate public purpose." CDK Glob. LLC v. Brnovich, 16 F.4th 1266, 1279 (9th Cir. 2021).
In order to determine whether a state law substantially impairs a contractual relationship the court will examine the following factors:
- Whether there is a contractual relationship.
- Whether a change in the law impairs that contractual relationship, and
- Whether the impairment is substantial.
RUI One Corp. v. City of Berkeley, 371 F.3d 1137, 1147 (9th Cir. 2004).
The Plaintiffs successfully established that there was in fact a contract between Uber/ Postmates and their respective app-based drivers. They then argued that the contractual relationship was impaired because it substantially alters the contract between the parties and would require new obligations that were not mutually agreed upon or contemplated in the formation of the agreements. For example, Uber and Postmates would be required to provide benefits, unemployment insurance, etc.
Despite these showings, the court found that the district court was correct in its ruling that the Plaintiffs did not plausibly allege the third element as to the substantial impairment of the contract. Although Plaintiffs argue that the independent contractor status of the gig workers is an essential element of the contract between them, the court found that A.B. 5 as amended, does not "interfere with Plaintiffs' reasonable expectations or prevent them from safeguarding or reinstating their rights." Plaintiffs also had no valid reason to expect that their contracts would be "immune from regulation." Therefore, the court concluded that the Contracts Clause was not violated by the enactment of A.B. 5.
Bill of Attainder Claim
A bill of attainder is "a law that legislatively determines guilt and inflicts punishment upon an identifiable individual without provision of the protections of a judicial trial." Sea River Maritime Fin, Holdings, 309 F.3d at 668. Courts assess the following factors in determining whether a statute inflicts punishment:
- Whether the challenged statute falls within the historical meaning of legislative punishment.
- Whether the statute, reviewed in terms of the type and severity of burdens imposed reasonably can be said to further nonpunitive legislative purposes; and
- Whether the legislative record evinces a legislative intent to punish. Id.
In the case at hand, the Plaintiffs' assertions fail the first element. The historical definition of legislative punishment is "legislation that sentenced the named individual to death, imprisonment, banishment, the punitive confiscation of property by the sovereign, or erected a bar to designated individuals or groups participating in specified employments or vocations." Id. Plaintiffs allegations do not even come close to meeting this definition as the closest argument they make is that the law interferes with their business model. The Plaintiffs failed to establish that the statute's impact rises to the level described in this historical description, or a legislative intent to punish in this manner. Thus, the court concluded that the Plaintiffs failed to show that A.B. 5 constitutes a Bill of Attainder.
Conclusion
Despite not winning on every point of contention on appeal, the Plaintiffs successfully revived their claim as to equal protection. This is good news for employers negatively impacted by the independent contractor classification law. The district court will now consider whether the Plaintiffs' request for preliminary injunctive relief should be granted. The attorneys at Wood, Smith, Henning and Berman are carefully monitoring the progression of this case and will keep all stakeholders apprised of its result.