Judge to Uber on AB5: That Means You, Too, and Now

Los Angeles, CAOn February 10, the District Court for the Central District of California denied a motion for injunction that would halt enforcement of California’s Gig Worker Law against Uber and Postmates while both companies challenge the law’s constitutionality. The decision means that both companies must begin to treat workers as employees in accord with California labor law--and entitled (with few exceptions) to the benefits of California’s prevailing wage laws.

The opinion dismantles the plaintiffs’ arguments about the likely success of their constitutional challenge with surgical precision. It may prove to be a useful legal roadmap for ways to counter other challenges to AB 5 that may arise.
 

Olson v. California

The underlying challenge to the constitutionality of the Gig Worker Law may be understood as something of a Hail Mary pass to preserve the gig worker business model on which many app-based businesses like Uber and Postmates depend for their success. AB5 codifies and, to some extent, extends the holding of Dynamex Operations West, Inc. v. Superior Court and creates a rebuttable presumption that all workers are employees, unless either the employer or the worker can show conclusively otherwise. Many believe that the law poses an existential threat to the financial model of app-based behemoths like Uber.

Olson argues that the law is unconstitutional under both the California and U.S. Constitutions for 10 specific reasons, including violation of the Equal Protection and Due Process clauses of the Fourteenth Amendment and the Article 1 prohibition on the impairment of contracts (“Contract Clause”) under both.

The motion for a preliminary injunction argues two things:

• that enforcement of AB5 while the lawsuit moves through the courts would do irreparable damage to Uber and Postmates and other plaintiffs, and
• the plaintiffs are likely to succeed anyway.

Judge Dolly Gee slammed Uber on the “likelihood of success” argument. The court did not rule on the merits of the constitutional arguments but telegraphed its likely future decision. The meticulous reasoning of the opinion may also prove useful to defenders of AB5 in future lawsuits.
 

”AB5 unfairly targets gig economy companies.”

Plaintiffs argue that AB 5 targets gig economy companies and workers and treats them differently from similarly situated groups. Legal eagles will recognize this as a basic equal protection argument. In making this argument, Uber and other plaintiffs had to show that the action of the California state legislature in enacting AB5 was irrational and had no relation to legitimate public policy.

The legislature, however, set out its reasoning for enacting the law quite explicitly. Its stated intent 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.”

The plaintiffs particularly cited the numerous “carve outs” created under the law for certain categories of workers, like Tupperware salespeople who sell goods from home and are not deemed employees. The court was not moved by the argument that Uber drivers should be treated as outside salespeople and turned to the “impairment of contracts” argument.
 

“AB5 unfairly deprives workers of the right to work as independent contractors without due process of law.”

This argument is closely related to the contract impairment article discussed below, but focuses on whether workers have a basic right to drive or deliver goods as independent contractors. This is an argument that seems to have some traction in press coverage even outside California.

While the argument focuses on the economic harm suffered by caregivers who want to work part time and freelancers, the court focuses on the legal question of whether the right to work as a particular kind of worker is a “fundamental right.” States may limit the conditions under which people work if those limits have a rational basis. Lawyers must have licenses, for example.

Again, the court was unmoved. The opinion concludes that:

“Even if Individual Plaintiffs’ employment status would change under AB 5, they potentially could still pursue their line of work, provided that their employers compensate them properly and allow them to have flexible work schedules.”
 

“AB5 limits freedom of contract.”

It is a fundamental tenet of the market economy that contracts should be regarded as valid and enforceable, absent conditions like illegality, duress or lack of mental capacity.  More simply put, it is not the law’s job to save someone from a bad deal.

The U.S. Constitution and the California constitution prohibit the Legislature from enacting laws impairing the obligation of contracts. In operation, however, both levels of government regulate contracts to safeguard the vital interests of the people. The legal issue becomes one of whether the impairment is “substantial.”

In finding that AB5 did not substantially impair the employment contracts in question, the District Court noted that the law does not require employers to reclassify independent contractors as employees. Whether a work relationship should be classified as “employment” or “independent contracting” depends not on what the parties call it, but on the actual nature of the relationship. It’s not the contractual language; it’s the facts – the daily details of what actually happens – that matter.

Since the presumption of an employment relationship that AB5 creates is rebuttable, either party could presumably introduce factual evidence to support either status.

These are only three of the arguments made by Uber and other plaintiffs in their motion for a preliminary injunction. The court’s reasoning in denying that motion may serve as a textbook for countering similar arguments in the future.