Ninth Circuit: Worker Classification “ABC” Test Legal Challenges Continue

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March 17, 2023

  

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Quick Look

  • AB 5 codified the “ABC test” for independent contractor classifications, and AB 170 and AB 2257 excluded several positions as exempt from employee relationship status.
  • The Ninth Circuit said that certain gig economy workers could continue their legal challenge that AB singles out app-based transportation business while exempting other gig economy businesses.

Discussion

In Olson v. California, the Ninth Circuit Court of Appeals said that plaintiffs could continue their lawsuit alleging AB 5 violates the Equal Protection Clause. AB 5 codified the “ABC test” for independent contractor classification. There is a presumption of an employment relationship unless the following factors are met: 1) the worker is free from the control and direction of the hiring entity with the performance of the work both in fact and under contract; 2) the worker performs work that is outside the usual course of the hiring entity’s business; and 3) the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed. AB 170 and AB 2257 amended AB 5 to add several positions excluded from the presumption of employee status under the law. This included photographers, appraisers, home inspectors, and certain gig economy workers but notably did not include ride-hailing drivers. Plaintiffs from Postmates and Uber alleged that AB 5 targeted gig economy companies and was unconstitutional due to violations of the Equal Protection, Due Process, and Contract Clauses.

The Court applied a rational basis review to determine whether the law is rationally related to a legitimate governmental interest. Under this standard, the Court found it was plausible that AB 5 could violate the Equal Protection Clause while dismissing the Due Process and Contract Clause claims. AB 2257 gave exemptions for certain app-based gig companies with similar business models as that of ride-hailing apps. This exclusion indicated that the California Legislature specifically disfavored ride-hailing businesses although there is no explanation that such workers are less susceptible to being exploited as independent contractors. This ruling allows the plaintiffs to continue their claims in district court and determine whether they are entitled to preliminary injunctive relief for their Equal Protection claim.

 

Action Items

  1. Review independent contractor agreements and classifications with legal counsel.
  2. Subscribers can call our HR On-Call Hotline at (888) 378-2456 for further assistance.

Disclaimer: This document is designed to provide general information and guidance concerning employment-related issues. It is presented with the understanding that ManagEase is not engaged in rendering any legal opinions. If a legal opinion is needed, please contact the services of your own legal adviser. © 2023 ManagEase