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State law dealt blow to gig firms' independent contractor

model

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Three-judge panel had revived Uber ( UBER ), Postmates challenge

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Several judges on 11-member panel skeptical of companies'

claims

By Daniel Wiessner

March 20 (Reuters) - Several U.S. appeals court judges

on Wednesday seemed skeptical of a bid by Uber ( UBER ) and

subsidiary Postmates to revive a challenge to a California law

that could force the companies to treat drivers as employees

rather than independent contractors who are typically less

expensive, though it was unclear how the full court could rule.

An 11-judge en banc panel of the 9th U.S. Circuit Court of

Appeals in San Francisco heard arguments in Uber's ( UBER ) appeal of a

judge's ruling that said the company failed to show that the

2020 law known as AB5 improperly singled out app-based

transportation companies while exempting many other industries.

Employees are entitled to the minimum wage, overtime pay,

reimbursements for expenses and other protections that are not

extended to independent contractors. Uber ( UBER ), Postmates and similar

services typically treat workers as contractors in order to

control costs.

AB5 raised the bar for proving that workers are truly

independent contractors, requiring a company to show that

workers are not under its direct control or engaged in its usual

course of business and operate their own independent businesses.

California lawmakers exempted many jobs and businesses from

AB5's reach, including "referral agencies" that connect workers

and customers, but explicitly did not exempt app-based

transportation and delivery services.

The law has spurred legal challenges from freelance workers

and trucking companies, which so far have failed. The U.S.

Supreme Court has declined to hear at least two of those cases.

Wednesday's arguments came as the California Supreme Court

is considering the state's appeal of a ruling that revived a

ballot measure passed by nearly 60% of state voters in 2020 that

exempts app-based transportation services such as Uber ( UBER ) from AB5

if they provide certain benefits to drivers.

While most of the eleven 9th Circuit judges on the en banc

panel spoke, it was not clear how many of them were leaning. But

some of the judges asked pointed questions of Uber's ( UBER ) lawyer,

Theane Evangelis, that suggested they were not convinced that

the company should be able to pursue the case.

Circuit Judge Mary Murguia said it was well established that

legislators can make distinctions between different groups even

when they are "underinclusive and overinclusive."

"Even if the line drawing in AB5 and its amendments is not

perfect, I'm trying to figure out why that is fatal to the

legislation," Murguia said.

Circuit Judge Gabriel Sanchez similarly noted that various

industries where worker misclassification is allegedly

widespread were also explicitly included in AB5's scope. Those

industries include agricultural labor, retail, logging, in-home

care, janitorial services and many others.

"Why should we agree with the premise that it was meant

specifically to carve out certain companies ... when it reached a

much broader group of industries?" Sanchez asked Evangelis.

Evangelis told the court that the ample number of exemptions

in the law undermined its stated purpose of addressing worker

classification. And she said there was enough evidence showing

that legislators targeted Uber ( UBER ) and similar services to allow the

case to go to trial.

"The state is allowed to invoke any legitimate purpose, but

we get to test that purpose," she said.

A three-judge 9th Circuit panel had revived the case last

year, reversing a judge who had dismissed the lawsuit. The panel

said the "piecemeal fashion" in which legislators made

exemptions to AB5 supported Uber's ( UBER ) claims that the law violated

its rights to equal protection under the U.S. Constitution.

The en banc court voted to rehear the case in December. None

of the three judges on the original panel are on the en banc

panel.

Samuel Harbourt of the California Attorney General's office,

who argued for the state, told the court on Wednesday that it

was reasonable for lawmakers to exempt industries where there

had been little history of worker misclassification. He said

Uber ( UBER ) had not met the high bar of showing that there was no

conceivable legitimate basis for the law.

"Plaintiffs' argument would threaten to cast a cloud of

legal uncertainty over the validity of economic legislation at

every level of government," he said.

The case is Olson v. California, 9th U.S. Circuit Court of

Appeals, No. 21-55757.

For the plaintiffs: Theane Evangelis of Gibson Dunn &

Crutcher

For the state: Samuel Harbourt of the California Attorney

General's office

Read more:

Uber ( UBER ) challenge to California contractor law revived by U.S.

appeals court

Judge tosses challenge by Uber ( UBER ), Postmates to California's

AB5 law, for now

Judge denies Uber's ( UBER ), Postmates' request to halt California

gig worker law

Uber ( UBER ), Postmates sue to block California gig worker law,

claiming it's unconstitutional

California court upholds treating app-based drivers as

contractors

(Reporting by Daniel Wiessner in Albany, New York)