A recent decision from a federal appeals panel in California should signal to other courts that they should take into consideration the motivations and statements of key lawmakers when evaluating whether laws they pass targeting certain kinds of companies are constitutional, according to an interpretation of that ruling by an attorney involved in the fight against California's controversial anti-gig economy law known as AB 5.
A three-judge panel from the U.S. Ninth Circuit Court of Appeals recently found that a group of Uber drivers will likely prevail on their claims that AB 5 violates the Equal Protection Clause of the U.S. Constitution. They said exemptions placed in the law for some occupations, but not others, has created uneven application of the law and caused the state to intentionally target certain classes of independent workers.
The case began shortly after Gov. Gavin Newsom signed AB 5, which allowed the state to go after gig workers whose employers don't consider them direct employees. Lydia Olson and other Uber drivers sued the state on constitutional claims. The Ninth Circuit panel then ruled that the plaintiffs plausibly alleged that AB 5 violates the Equal Protection Clause for those engaged in app-based ride-hailing and delivery services.
Timothy Long
| GTLaw.com
The unanimous decision in Lydia Olson et al v. State of California et al, authored by Justice Johnnie B. Rawlinson, was issued in March.
“Applying the very lenient rational basis test, which the Ninth Circuit itself characterized as “ ‘a fairly forgiving standard’ as it affords states ‘wide latitude . . . in managing their economies,’” the Ninth Circuit determined that plaintiffs had stated a claim for violation of the equal protection clause,” Timothy Long, co-managing shareholder with Greenberg Traurig, told the Northern California Record by email.
“This is a signal from the court that on remand, the trial court should cast a critical eye on the passage and implementation of AB 5" and other bills enacted by the California state legislature, ostensibly to address problems with the law, Long said.
Long said the court, on remand, should particularly weigh "what proponents, including legislators, said about the purpose of AB 5 as amended and the justifications publicly articulated for each of the exemptions that the legislature granted (and withheld) from the coverage of AB 5 as amended."
He noted the plaintiffs’ arguments can be distilled down to the following: “AB 5 as amended did not rationally further the government’s interest in the proper classification of workers as employees (versus independent contractors) given the numerous exemptions the legislature permitted."
“Plaintiffs also argued that these exemptions could only be explained by improper animus against gig companies, pointing to statements made by the bill’s sponsor, now former Assemblywoman Lorena Gonzalez, among other facts," Long said.
The Court wrote that certain app-based gig companies with similar business models to plaintiffs’ received carve-outs under AB 5, while others, like Uber, Lyft and other ride-hailing companies, did not.
“According to the Court, the ‘piecemeal fashion’ in which the California Legislature included these exemptions in AB 5 supported plaintiffs’ allegations that the Legislature specifically disfavored ride-hailing companies, as there is no indication that many of the exempted workers are ‘less susceptible to being exploited by being classified as independent contractors.’ The Court also took note of numerous remarks by legislators singling out ride-hailing companies as targets for AB 5, concluding these comments and the resulting legislation could plausibly be ‘attributed to animus rather than reason.’”
It is unclear whether the Ninth Circuit’s Olson decision would mean more court challenges to other California employment regulations, Long said.
“AB 5 as amended is unique,” Long said. “That the Ninth Circuit found that plaintiffs had stated a claim for violation of the Equal Protection Clause, however, suggests that at least in the Ninth Circuit, courts may cast a more critical eye when evaluating statutes challenged as unconstitutional based on such arguments, ... that the statute’s actual provisions are inconsistent with the statute’s stated purpose.
“The Ninth Circuit also signaled that courts should not disregard statements from key legislators when evaluating such claims to determine whether such statements evidenced animus towards certain parties affected by the statute.”
Long stressed three key takeaways about this federal appellate decision.
“First, it’s not every day one can challenge the government on a rational basis test and win. Second, in reversing the district court, the Ninth Circuit basically said the district court got it wrong. The door should be open for plaintiffs to further develop the evidence to support its arguments. Third, if the plaintiffs can develop the evidence to support their arguments, the plaintiffs may enjoin the enforcement of AB 5 as amended, and the codification of the Dynamex decision, which would have far-ranging consequences beyond the gig economy.”
Under the 2018 decision known as Dynamex v Superior Court, the California Supreme Court interpreted California law to presume that all workers are employees subject to the state's wage and hour laws, unless their employer can use a stringent three-part test to prove they are actually independent contractors.
Following the Ninth Circuit decision, the Olson case goes back to the Central District of California for reconsideration of the plaintiffs' motion for a preliminary injunction. But the state also has indicated it may file a petition for a rehearing before the Ninth Circuit.