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Ninth Circuit:
Differential Treatment of Delivery Workers Is Justified
Nguyen Says There’s a Rational Basis for AB 5’s Creation of Separate Test for Drivers
By Kimber Cooley, Staff Writer
The Ninth U.S. Circuit Court of Appeals held yesterday that a 2018 statute providing for the application of a separate test for specific industries—such as app-based delivery services—in determining whether a company’s workers are employees or independent contractors survives rational-basis review where the targeted businesses are ‘more substantial contributors’ to the problem of a misclassification of laborers.
Plaintiffs Uber Technologies, Inc. and Postmates, Inc., as well as two drivers who use the platforms, sued the State of California and the attorney general of California seeking declaratory, injunctive and other relief based on allegations that Assembly Bill 5 violates the Equal Protection Clauses, the Due Process Clauses the Contract Clauses and Bill of Attainder Clauses of the U.S. and California Constitutions.
Circuit Judge Jacqueline H. Nguyen wrote the opinion for an en banc court, concluding—contrary to the reasoning by a three-judge panel in a March 17, 2023 opinion—that that District Court Judge Dolly M. Gee of the Central District of California properly dismissed, with prejudice, the plaintiffs’ equal protection claims. In granting, on Dec. 18, a rehearing before all nonrecused active judges, the opinion of a three-judge panel was vacated; yesterday, the portions affirming a dismissal of the other claims were reinstated.
Addressing the equal protection claim, Nguyen declared:
“In evaluating the constitutionality of A.B. 5 under the Equal Protection Clause, we ask whether ‘plausible reasons’ exist for the law. We find that they do.”
Issue Not Moot
Gee’s ruling came on July 16, 2021. She held that Proposition 22—which became effective on Dec. 16, 2020—did not render the matter moot.
That measure classifies rideshare and delivery drivers as independent contractors. Gee found that “[a]lthough Prop 22 created a new classification scheme for gig economy workers, it did not include a retroactive application provision” and said that “Prop 22 does not moot this constitutional challenge.”
Agreeing, Nguyen wrote:
“There are ongoing state enforcement actions seeking retrospective relief, including civil penalties, for Uber’s and Postmates’ alleged violations of A.B. 5 that transpired prior to Prop. 22’s effective date. The extent of Uber’s and Postmates’ liability in those enforcement actions would be affected by our resolution of the constitutional challenge to A.B. 5, given that Prop. 22 does not apply retroactively. The parties therefore continue to maintain a concrete interest in the outcome of this litigation, and the appeal is not moot.”
Two Cases
Nguyen noted that “[t]hroughout much throughout of the 20th century, California courts classifying workers as ‘employees’ or ‘independent contractors’ under various state employment laws applied the common law ‘control of details’ test” established by the 1989 California Supreme Court decision in S.G. Borello & Sons v. Department of Industrial Relations.
Under the Borello test, the primary question is whether the worker has the right to control the manner and means of accomplishing the task, and set forth factors such as the right to discharge at will, whether the worker supplies his own tools and the permanence of the working relationship as relevant to the analysis.
In 2018, the high court decided Dynamex Operations West, Inc. v. Superior Court, which adopted a different test—known as the “ABC test”—specifically for determining if a worker is an employee subject to California wage orders. In Dynamex, then-Chief Justice Tani Cantil-Sakauye (now retired) said that a worker is properly considered an independent contractor for wage-order purposes only if the hiring entity establishes that:
“(A) that the worker is free from the control and direction of the hirer in connection with the performance of the work…; (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 the work performed for the hiring entity.”
Two Tests
The jurist explained that, following the Dynamex decision, the Legislature enacted Assembly Bill 5 in 2019. The bill codified the Dynamex decision and extended the ABC test beyond wage orders to other labor and employment legislation, including workers’ compensation, unemployment insurance, and disability insurance.
Sec. 2 of the bill provides that “referral agencies” or “business[es] that provide[] clients with referrals for service providers to provide services” would be subject to the Borello test rather than the ABC test.
The bill was amended one year later to clarify that “businesses that provide…delivery, courier, [and] transportation services” would be covered by the ABC test and would not be considered “referral agencies.”
Nguyen remarked:
“[U]nder A.B. 5 as amended, arrangements between workers and referral agencies that provide delivery or transportation services are automatically subject to the ABC test, while arrangements between workers and referral agencies that provide other types of services, such as dog walking or handyman services, are subject to the multifactor Borello test….”
Similarly Situated
The jurist pointed out that in order to establish an Equal Protection Clause claim, the plaintiffs must establish the existence of a similarly situated class that has been treated disparately.
The plaintiffs pointed to two other app-based companies—Wag!, which provides on-demand dog-walking services, and TaskRabbit, which provides handyman tasks—and argued that these other entities are functionally identical to Uber and Postmates but, unlike the plaintiff companies, are not subject to the ABC test under Assembly Bill 5.
The plaintiffs further contend that whether the platforms are similarly situated is an issue of fact, and not amenable to resolution at the motion to dismiss stage. Disagreeing, Nguyen wrote:
“Even if we assume that Uber and Postmates are similarly situated to Wag! and TaskRabbit, and that A.B. 5 treats Uber and Postmates disparately from those similarly situated comparators, Plaintiffs’ Equal Protection claim nevertheless fails. There are rational reasons for that disparate treatment.”
Rational Basis
The judge remarked that under the rational basis test, a court must only consider whether there is some conceivable legitimate purpose justifying the different treatment.
With respect to the legislation at issue, she said:
“The stated purpose of A.B. 5 is to address the ‘misclassification of workers,’ which the California legislature described as a ‘significant factor in the erosion of the middle class and the rise in income inequality’….By codifying and expanding the reach of the…decision in Dynamex, the legislature sought to restore important workplace protections and rights to potentially several million workers who were ‘exploited by being misclassified as independent contractors instead of recognized as employees.’”
She continued:
“We therefore turn our focus to whether A.B. 5’s distinction between transportation and delivery referral services, on the one hand, and other types of referral services on the other, is rationally related to this stated purpose. We conclude that it is.”
Substantial Contributors
Nguyen reasoned:
“One explanation for such a distinction is that the legislature perceived Uber, Postmates, and other transportation and delivery services as more substantial contributors to the problem of misclassification than referral agencies engaged in other services….To the extent that it perceived Uber, Postmates and other transportation and delivery app-based services as posing a greater risk of misclassification than Wag! or TaskRabbit, the California legislature acted rationally….”
Accepting the plaintiffs’ characterization of Wag! As the “Uber for dogs,” she wrote:
“The legislature may have perceived Uber as the pioneer of the on-demand app-based business model that many other services replicated. It is certainly reasonable for the legislature to try to target the problem of misclassification at its origin.”
Rejecting the contention that the bill was motivated by impermissible animus and political favoritism, she wrote that “[b]ecause we have identified plausible legitimate purposes motivating A.B. 5 and the lines it draws between workers in different industries and occupations, we need not further address these arguments.”
The case is Olson v. State of California, 21-55757.
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