A US appeals court rejected Uber's and its subsidiary, Postmates' motion to revive a legal challenge against a California law that could potentially force companies to decide whether gig workers should be classified as employees rather than independent contractors.
Uber's Appeal on Challenging AB5
An 11-judge panel of the 9th US Circuit Court of Appeals in San Francisco affirmed a decision by a lower court on Monday, stating Uber had not demonstrated that the 2020 AB5 state law unfairly targeted app-based transportation companies while granting exemptions to other industries.
Uber declared in a statement on Monday that the ruling would not alter the classification of its drivers, who are currently regarded as contractors under a 2020 ballot initiative called Proposition 22, which is currently under consideration in a separate case at the state's highest court.
While arguments were presented by a labor union and four drivers last month, asserting that the ballot measure was unconstitutional, a spokesperson for the California attorney general's office did not provide an immediate comment in response to a request.
Circuit Judge Jacqueline Nguyen noted in an opinion that there are valid justifications for treating transportation and delivery referral companies differently from other types of referral companies. This is especially true since the legislature viewed transportation and delivery companies as major contributors to worker misclassification, an issue it always aims to tackle.
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A Gig Worker Vs. Employee Status
The distinction between being classified as a gig worker and an employee has become a significant point of contention within the industry. Employees are entitled to various benefits such as minimum wage, overtime pay, expense reimbursements, and specific legal protections that independent contractors do not receive. This difference substantially impacts gig companies' financial performance, as hiring independent contractors can be more cost-effective. Numerous studies have indicated that employing contractors can save companies up to 30%.
The Workers' Classification
AB 5, effective in 2020, imposes stricter criteria for companies seeking to classify their workers as independent contractors.
The dispute regarding the extent of AB5 arises within a broader national discourse concerning state and federal laws and other regulations, which might compel more companies to classify their workers as employees. In March, US business groups filed a lawsuit against the Biden administration in federal court, contesting its endeavors to impose stricter criteria for companies to classify certain workers as independent contractors rather than employees.
The highest state court in Massachusetts is currently deliberating on whether voters should have the opportunity to consider ballot measures that would redefine the employment relationship between on-demand drivers and their companies within the state in November.
California's AB5 elevated the standard for demonstrating that workers are genuinely independent contractors, necessitating companies to demonstrate that they operate outside of their direct control, are not engaged in the company's usual business activities, and run independent enterprises.
In December 2019, Uber and two drivers filed a lawsuit challenging the California law, asserting that AB5 was an irrational and unconstitutional statute intended to suppress workers and companies within the on-demand economy. A federal judge in Los Angeles initially dismissed the lawsuit at an early stage but was revived by a three-judge panel from the 9th Circuit last year, stating that the "piecemeal fashion" of exemptions to the law provided sufficient grounds for Uber's lawsuit to proceed. The ruling by the 11-judge circuit court on Monday overturned Uber's previous victory.
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