In the latest chapter of the saga of California’s Assembly Bill 5, the Ninth U.S. Circuit Court of Appeals vacated a panel decision finding that the law violated the Equal Protection Clause and granted rehearing en banc.

The long-running dispute began in 2019, when the state legislature enacted AB 5 and adopted the “ABC test” used by the California Supreme Court in Dynamex Operations West, Inc. v. Superior Court of Los Angeles.

Pursuant to AB 5, all workers are assumed to be employees, not independent contractors, unless the employer can affirmatively satisfy the ABC test by proving three things: (A) that the worker is free from the control and direction of the hirer when performing the work, both under the contract for the work and in fact; (B) that the worker performs work that is outside the usual course of the hiring entity’s business; and (C) that the worker is customarily engaged in an independently established trade, occupation or business of the same nature as that involved in the work performed.

The new law faced immediate challenges, ranging from a First Amendment action to a lawsuit filed by freelance writers and photographers.

In addition, Lydia Olson—a California-based Uber driver—and Miguel Perez, who uses Postmates to run his own delivery business, filed suit seeking to enjoin the state and attorney general from enforcing AB 5.

They argued that the law (as it was enacted and then later amended by Assembly Bills 170 and 2257, both of which added more exemptions for specific categories of workers) violated the Equal Protection Clause for those engaged in app-based ride-hailing and delivery services.

The primary impetus for the enactment of the law was the disfavor with which the architect of the legislation viewed Uber, Postmates and similar gig-based business models, the plaintiffs told the court.

Claims for violations of the Due Process Clause and the Contract Clause and a request for a preliminary injunction were also included in the lawsuit.

A district court sided with the state and dismissed the case. 

But in March, a three-judge panel of the Ninth Circuit reversed on the Equal Protection Clause and preliminary injunction claims.

The court noted that it was “undisputed that the enactment of AB 5 was largely driven by a perceived need to curb reported abuses in the gig economy, particularly rideshare companies and analogous platforms.”

Assemblywoman Lorena Gonzalez, the sponsor of the measure, published in The Washington Post an op-ed in which she wrote that the law would “guarantee…workers the normal rights and privileges—and benefits—enjoyed by most employees” that “gig companies such as Uber, Lyft, DoorDash, Handy and others” do not provide.

In an article in the Los Angeles Times, Gonzalez indicated that she was open to changes in AB 5, including an exemption for musicians, but “not for app-based ride-hailing and delivery giants.”

Within a year of enactment, AB 5 was amended by AB 170 and AB 2257, both of which exempted even more workers from the presumption of employee status.

Applying rational basis review, the panel determined that the state couldn’t meet even this fairly forgiving standard.

“Plaintiffs plausibly allege that the primary impetus for the enactment of AB 5 was the disfavor with which the architect of the legislation viewed Uber, Postmates and similar gig-based business models,” the court wrote. “However, the publicly articulated purpose of AB 5 was 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.’

“But, as plaintiffs plausibly alleged, the exclusion of thousands of workers from the mandates of AB 5 is starkly inconsistent with the bill’s stated purpose of affording workers the ‘basic rights and protections they deserve.’”

The panel added that the “piecemeal fashion” in which the exemptions were granted “lends credence to plaintiffs’ allegations that the exemptions were the result of ‘lobbying’ and ‘backroom dealing’ as opposed to adherence to the stated purpose of the legislation.”

The court found no indication that many of the workers in exempted categories—including those working for the app-based gig companies that are exempted—were less susceptible to being “exploited by being misclassified as independent contractors.”

Further, the panel found that the plaintiffs plausibly alleged that their exclusion from wide-ranging exemptions could be attributed to animus rather than reason.

Given its holding on the equal protection claim, the court also reversed dismissal of the denial of a preliminary injunction, remanding the issue for reconsideration consistent with its opinion. The panel affirmed dismissal on the plaintiffs’ other claims.

The significant victory for the plaintiffs was short-lived, however, with an order from the Ninth Circuit on December 18 announcing that the case will be reheard en banc and that the three-judge panel opinion was vacated.

To read the three-judge panel decision in Olson v. California, click here.

To read the order granting rehearing en banc, click here.

Why it matters

The battle over worker classification in the gig economy continues in California with the Ninth Circuit’s decision to rehear the case en banc.