In a stunning decision Friday that departs from nearly 90 years of Supreme Court decisions, the U.S. 9th Circuit Court of Appeals has allowed a constitutional challenge to Assembly Bill 5, the 2019 California law meant to protect low-wage workers.
The ruling is especially shocking and troubling because in 2021 the same court rejected exactly the same challenge to the same law. The turnabout in Friday’s decision is likely to open the door to constitutional challenges to countless state business regulations.
The case, Olson v. State of California, was brought by Uber and Postmates to challenge AB 5’s requirements that drivers for those companies be treated not as independent contractors, but as employees subject to the protections of minimum wage, overtime, workers’ compensation, unemployment insurance and anti-discrimination laws.
In a 2018 case involving truck drivers, the California Supreme Court adopted a three-part test for determining the status of a worker for purposes of state wage and labor laws. The Legislature with AB 5 codified and expanded this test to cover most low-wage and low-skilled work, including app-based drivers, warehouse workers and other sectors where the legislature found companies abused the independent contractor designation.
It is a complicated legal landscape because in 2020 California voters passed Proposition 22, which grants app-based transportation and delivery companies an exemption to AB 5 allowing them to continue classifying their drivers as independent contractors. However, AB 5 still applies to all other California workers. Separately, Proposition 22’s constitutionality remains in question and will probably need to be resolved by the state Supreme Court.
In 2021, in American Society of Journalists and Authors, Inc. v. Bonta, the 9th Circuit expressly rejected the argument that AB 5 denies equal protection because it treats some workers differently from others. The court, following almost 90 years of Supreme Court precedent, declared there is “wide latitude afforded to states in managing their economies.”
This makes the court’s latest decision — on the very same issue of regulating gig-based companies — truly inexplicable. This time, Uber and other gig companies argued AB 5 unconstitutionally discriminates against them because it exempts other occupations, such as doctors, lawyers, graphic designers and cosmetologists.
The federal district court in Los Angeles dismissed the Olson case, noting the government has broad authority to make regulatory decisions. Indeed, since 1937, the Supreme Court has never struck down a regulation of business as violating the Constitution’s equal protection clause.
For example, in 1976, the court upheld a New Orleans law that prohibited pushcart vendors in the French Quarter except for those who had been there for at least eight years. In 1956, the court upheld an Oklahoma law prohibiting opticians from making lenses, even to replace broken glasses, without a prescription from an optometrist or ophthalmologist. The court has long emphasized that the Constitution does not prevent lawmakers from making distinctions between businesses, even when the laws might be unwise or imperfect.
Bizarrely, the 9th Circuit decided in Olson that the gig companies could challenge AB 5 on the grounds that the law “can be attributed to animus rather than reason.” The court focused on statements of AB 5’s principal sponsor, former Assembly member Lorena Gonzalez, critical of the labor practices of app-based ride-hailing and delivery service companies.
(The court repeatedly characterized these companies as a “politically unpopular group” targeted by the California Legislature, never mentioning these very companies successfully persuaded California voters to pass Proposition 22 to exempt them from AB 5.)
If this analysis is allowed to stand, then any law regulating business can be challenged as violating equal protection if the bill’s sponsor points to particularly pernicious practices as a basis for the legislative action.
Imagine that a Legislature was concerned about toxic pollution from a particular type of industry and sought to regulate it, while leaving other forms of pollution by other industries unregulated. Exposing the environmental hazard could be labeled “animus” and the regulation could be seen as denying equal protection.
Surely, the state Legislature has the power to identify particularly harmful business practices and to regulate those. Doing that is not “animus,” but the essential role of the Legislature.
In adopting AB 5, the California Legislature concluded there were substantial abuses of workers by companies running app-based ride-hailing and delivery services. Its approach was not arbitrary; the law carries out a sensible test articulated by the California Supreme Court.
For decades, conservatives have preached judicial restraint and deference to the political process. But that doesn’t seem to apply when they don’t like government regulation of business. They will surely use the 9th Circuit’s new decision and its fallacious reasoning to challenge a myriad of essential regulations needed to protect workers and consumers.