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March 31, 2020 Articles

Uber, Lyft Drive Suits to the Courts to Determine Legality of Gig Worker Law in California

AB-5′s implementation is being watched closely around the country.

By John Austin

The California Trucking Association (CTA) has filed a law suit challenging California’s new “gig worker” law, Assembly Bill 5 (AB-5) and has successfully blocked the law’s impact on truck drivers in the state, at least temporarily. U.S. District Court Judge Roger Benitez of California’s Southern District granted a temporary restraining order because AB-5 is preempted by Federal Aviation Administration Authorization Act of 1994 (FAAAA). California Trucking Association, et al, v. Attorney General Xavier Becerra, et al, 3:18 cv 2458-BEN-BLM (S.D. Ca.). As applied to the motor carrier context, AB-5, which took effect on January 1, 2020, provides a mandatory test for determining whether a person driving or hauling freight for another contracting person or entity is an independent contractor or an employee for all purposes under California law. Under AB-5’s test (the “ABC test”), an owner-operator is presumed to be an employee unless the motor carrier establishes each of three requirements: (A) the person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact; (B) the person performs work that is outside the usual course of the hiring entity’s business; and (C) the person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

Focusing on element B of the ABC test, the CTA contends that the FAAAA prohibits any state from “enact[ing] or enforc[ing] a law, regulation, or other provision having the force and effect of law related to a price, route, or service of any motor carrier . . . with respect to the transportation of property.” 49 U.S.C. § 14501(c)(1). The court held, “AB-5 effectively mandates that motor carriers treat owner-operators as employees, rather than as the independent contractors that they are. In other words, because contrary to Prong B, drivers perform work within ‘the usual course of the [motor carrier] hiring entity’s business,’ drivers will never be considered independent contractors” under California law.

However, the California Trucking Association contends that the law doesn’t apply to trucking because it is preempted by the FAAAA. As part of his decision to grant the temporary restraining order on Dec. 31, Judge Benitez said the trucking group established that the law could cause imminent, irreparable harm to motor carriers.

“Plaintiffs have shown that AB-5’s Prong B is likely preempted by the Act because AB-5 effectively mandates that motor carriers treat owner-operators as employees, rather than as the independent contractors that they are,” Benitez wrote.

According to counsel for the California Trucking Association in an interview with the Washington Post, the temporary restraining order will remain in place pending the court’s ruling on the preliminary injunction motion. No timetable was provided on when the court will decide.

In a separate but related case, a state court judge determined that AB-5 doesn’t apply to trucking under the same rationale of federal preemption. Los Angeles Superior Court Judge William Highberger ruled on Jan. 8 that AB5 is preempted by the FAAAA.

“Here the requirements of the ABC test … clearly run afoul of Congress’ 1994 determination that a uniform rule endorsing use of nonemployee independent contractors should apply in all 50 states to increase competition and reduce the cost of trucking services,” Highberger wrote.

“This is just the beginning of what is expected to be a very long legal challenge,” the Owner-Operator Independent Drivers Association wrote to its more than 160,000 members on Jan. 10. “OOIDA’s legal team is currently reviewing these rulings, other pending lawsuits, and options for legal action of our own. We’ve always maintained that misclassification in trucking is a very real issue, but California’s legislative approach was overly broad and unnecessarily chaotic. Simply outlawing independent contractors in trucking is unacceptable.”

AB-5 seeks to compel all companies―most notably the ride sharing apps of Lyft and Uber―to treat more of their workforce like employees. The law seeks to protect California workers who depend on apps to get gigs, and it has inspired similar efforts in New York, New Jersey and Illinois. The bill’s passage and implementation has created a substantial debate between the state and companies that would now be considered employers. California has pledged to budget at least $20 million to enforce the law. On the other hand, tech companies like Uber, Lyft, Postmates, DoorDash and Instacart have aligned to sponsor a $110 million ballot initiative that would formally exempt them from the law.

AB-5 represents one of the most significant attempts to address the ways that technology has upended the nature of work. The bill’s passage was a milestone in an increasingly loud discussion about reining in some of Silicon Valley’s most vaunted companies, and its outcome could affect the plight of hundreds of thousands of workers for years as it moves to other states.

In Dynamex Operations West v. Charles Lee, the California Supreme Court handed down a decision that put into motion the momentum of the legislature to adopt AB-5. Dynamex is a national document and delivery service that had classified all of its workers as employees. However, in 2004, Dynamex had changed all its delivery drivers to the status of independent contractors. Plaintiff Charles Lee asserted he did all the same tasks as other employees and should be treated as an employee. The California Supreme Court agreed.

The Dynamex Court relied on Martinez v. Combs, 49 Cal.4th 35, 64 (2010), where the court held that “[t]o employ . . .under the [wage order], has three alternative definitions. It means: (a) to exercise control over the wages, hours, or working conditions, or (b) to suffer or permit to work, or (c) to engage, thereby creating a common law employment relationship.” 49 Cal.4th at p. 64.

The Dynamex Court concluded, “[T]hat in determining whether, under the suffer or permit to work definition, a worker is properly considered the type of independent contractor to whom the wage order does not apply, it is appropriate to look to a standard, commonly referred to as the ’ABC‘ test, that is utilized in other jurisdictions in a variety of contexts to distinguish employees from independent contractors.” The Court then set forth the three elements of the ABC Test to determine the status of the worker as an independent contractor:  (A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such 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 the work performed for the hiring entity. The California Legislature then codified the test in AB-5.

“The courts had clearly had enough of these suits,” said Assemblywoman Lorena Gonzalez (D-San Diego), who wrote the bill, said in an interview with the Washington Post. “From that day on, we said we’d really like to work on this.”

Wage and hour laws, as well as other laws designed to protect employees, do not protect independent contractors, such as minimum wage, overtime, sick and family leave, unemployment and disability insurance, and workers’ compensation. California’s new law doesn’t apply only to tech companies. It affects employees like janitors, construction workers, medical technicians, coders, yoga teachers, adult film stars, and dancers.

When AB-5 was first introduced in 2018, tech companies whose platforms rely on gig workers, like Uber, Lyft, Caviar, DoorDash, Handy and Instacart, joined to oppose codification of the ABC test, according to the San Francisco Chronicle. Such opposition spurred proponent groups of gig workers, Rideshare Drivers United and Gig Workers Rising.

After the bill passed the California assembly in June 2018, Uber and Lyft launched a campaign to win over the state senate and Gov. Gavin Newsom. Uber chief executive Dara Khosrowshahi and Lyft executives Logan Green and John Zimmer wrote an op-ed together in the San Francisco Chronicle, arguing that classifying their workforce as employees would cause drivers to lose the freedom and flexibility they currently enjoy. Despite the concerted opposition, AB-5 was signed into law by Gov. Newsom in September 2018. Labor advocates hailed the new law as a milestone.

A coalition of tech companies has pledged a reported $110 million for a new measure on the November ballot to exempt app-based drivers. Lyft and Uber, which together have more than 500,000 drivers in California, say they believe the law does not apply to their drivers, while simultaneously pursuing other avenues to exempt themselves from its provisions.

“We believe the model that we’re trying to create is best for drivers,” Lyft spokesman CJ Macklin said in an email to the Washington Post. “The ballot measure that we support will provide historic new benefits and protections, while still maintaining the flexibility and upward earning potential that is so important to our drivers.”

Uber and Postmates also sued California in December, alleging that AB-5 violates individuals’ constitutional rights and unfairly discriminates against technology platforms and those who make a living through them. In the complaint, also filed in U.S. Southern District Court of California, the plaintiffs include on-demand drivers Lydia Olson and Miguel Perez and call AB 5 an “irrational and unconstitutional statute designed to target and stifle workers and companies in the on-demand economy” and accuse its author, Assemblywoman Lorena Gonzalez (D-San Diego), of being overtly hostile to the gig companies.

“Rather than embrace how the on-demand economy has empowered workers, benefited consumers, and fueled economic growth, some California legislators have irrationally attacked it,” the complaint states. In their lawsuit, Uber and Postmates say AB-5 violates several constitutional rights including the equal protection and due process clauses of the Fourteenth Amendment, the Ninth Amendment, and the contracts clause of Article I. They also allege the law violates provisions of the California Constitution, including its  equal protection clause, inalienable rights clause, due process clause, “Baby Ninth Amendment”, and contracts clause. The companies are seeking declaratory and injunctive relief from the law as part of the suit. The allegation of equal protection violation arises from the large number of occupations exempted from AB 5 under heavy lobbying. The “laundry list of exemptions,” is proof of its “irrationality,” argue the plaintiffs.

In fact, the Complaint cites that the bulk of the statute’s language is devoted to enumerating the types of jobs it doesn’t apply to, a list that includes direct salespeople, travel agents, grant writers, construction truck drivers and commercial fisherman. “There is no rhyme or reason to these nonsensical exemptions, and some are so ill-defined or entirely undefined that it is impossible to discern what they include or exclude,” reads the complaint.

Freelance journalists is yet another group impacted by the new law and how it may impact their profession. Two groups representing freelance writers and photographers also filed a lawsuit in Dec. 17 in Southern District of the U.S. District Court in California. It alleges AB-5 unconstitutionally restricts free speech and the media. Freelance writers believe that smaller newspapers or websites might not have the resources to convert freelancers to staff members and AB-5 could discourage employers from hiring Californians to avoid added paperwork and legal liabilities. Vox Media announced in December it would end contracts with hundreds of freelance writers and editors in California who produce sports content in order to come into compliance.

AB-5′s implementation is being watched closely around the country. Other states with Democratic legislatures like New Jersey, New York, and Illinois have similar bills in the works. However, given the number of lawsuits generated by AB-5, other states may wait for the dust to clear before moving for more protections for gig workers.

John Austin practices law in Raleigh, North Carolina, and serves as cochair of the Section of Litigation's Trial Practice Committee.

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