September 22, 2023

AB5 3-ring legal circus: Full federal appeals court may hear Olson case


The “other” AB5 case in California — overshadowed by the better-known case brought by the California Trucking Association (CTA) — is awaiting word from the full 9th U.S. Circuit Court of Appeals on what happens next.

California partially lost the case against AB5 brought by Uber and Postmates in March before a three-judge panel of the 9th Circuit. The state of California is the defendant.

That decision, known as Olson after the lead plaintiff in the case first filed in 2019, said app-based drivers were singled out during the creation of AB5, the independent contractor law that was designed to make it more challenging to prove a worker was a true independent contractor rather than an employee. After passing AB5 in 2019, the state has piled on numerous exceptions to the law, but trucking and the largest groups of gig workers, such as those at Uber, Lyft and DoorDash, are not on the list of dispensations. (Wag, which matches up dog walkers with dog owners, does have an exemption.)

Arguments by the plaintiffs in the original lawsuit also included claims that their due process rights had been violated and that AB5 was a “law of attainder,” which is legislation written to target a particular company or person. Uber/Postmates/Olson (NYSE: UBER) also argued that AB5 violated state contract law.

Those arguments were rejected in the U.S. District Court for the Central District of California, where Olson was originally heard.

They were then mostly rejected by the appellate panel. But the panel did conclude that the process to create AB5 violated the equal protection clause of the Constitution, and ordered that the case be shipped back to the lower court to take that issue up again. 

With the case in limbo, Prop 22 is in effect and AB5 has not been implemented against gig workers in California. 

The state quickly asked instead that the case be heard in a full en banc hearing of the 9th Circuit instead of returning to the lower court. Attorneys for the plaintiffs are arguing against that. Both sides are awaiting the 9th Circuit’s decision.

Although the Olson case did not deal with trucking directly, it has spilled into the CTA case because of what the court found regarding statements by then-Assemblywoman Lorena Gonzalez, who was the primary sponsor of AB5. She is out of the Assembly now and is one of the state’s leading labor leaders.

The appellate court found that some of Gonzalez’s statements, combined with the long list of exemptions granted to various industries that were able to get out from under AB5, could lead to a conclusion that she and her fellow supporters of AB5 were singling out app-based drivers, thereby violating the equal protection clause.

At the heart of AB5 is the ABC test for determining employee status. The A prong deals with control of the worker; the C prong focuses on whether the worker is “customarily engaged in an independently established trade, occupation or business” in the same activity as the work being performed.

But it is the B prong that has created the largest challenge for trucking, because it defines an independent contractor as one who “performs work that is outside the usual course of the hiring entity’s business.” A trucking company hiring an independent owner-operator runs the risk of conflicting with the B prong.

In an amended filing in the ongoing CTA case that succeeded and then failed to keep AB5 out of trucking in the state, CTA and the Owner-Operator Independent Drivers Association told the lower court that Gonzalez’s words should be seen as singling out trucking as well.

The CTA case is the litigation that resulted in a preliminary injunction handed down New Year’s Eve 2019 blocking implementation of AB5 in trucking, was overturned by a federal appeals court, went to the U.S. Supreme Court where review was denied and then was sent back to the district court for the ongoing proceedings. After the Supreme Court action, AB5 became the law of the land in California trucking. OOIDA was added as a plaintiff after the case returned to the lower court.

In its request for the full circuit to hear the Olson/Uber/Postmates case instead of going back to the lower court, the state said that laws “subject to rational-based review are invalid on animus grounds” — which the plaintiffs argued had been exhibited by Gonzalez — “or where legislators exhibit ‘irrational prejudice,’” citing an earlier decision.

“There was nothing irrational or prejudice-driven about legislators expressing their view that certain companies’ practices are representative of a problem that can (and in the legislators’ view, should) be addressed by legislation,” the state argued. “And there is no plausible basis for concluding that AB5 rests exclusively on animus.”

“The distinctions drawn by AB 5 rest on rational, ‘legitimate state purpose[s],’” the state argued, citing precedents. “Panel rehearing or en banc review is warranted to address these and other conflicts between the panel opinion and the precedents of this Court and the Supreme Court.”

The Olson case is considered significant enough in the legal battle over independent contractor status that several states with either solid Democrat-controlled government or at least a Democratic governor or attorney general have weighed in on the side of the plaintiffs by filing an amicus brief.

The scorecard in the other two AB5 cases that impact trucking and gig workers looks like this:

  • The CTA/OOIDA case has a few new deadlines in the lower court before Judge Roger Benitez, who handed down the original injunction that kept AB5 out of California trucking 2 1/2 years after it went into effect at the start of 2020. There is a CTA/OOIDA request for a new injunction. The parties have agreed to set new filing deadlines for various legal documents at the end of both this month and next month, with a decision on the injunction request held off until at least Nov. 13.
  • The case brought by the Service Employees International Union’s state and international operations challenging the validity of Prop 22 is now before the state’s Supreme Court, which has agreed to hear arguments. That case, known as Castellanos after one of the named plaintiffs for the union, Hector Castellanos, comes out of a mixed verdict in March from the  Court of Appeal for the 1st Appellate District. The March decision overturned a 2021 decision that found that Prop 22, a ballot initiative put before the voters in 2020, was unconstitutional. Prop 22 blocked enforcement of AB5 against gig drivers such as those at Uber and Lyft, and those companies sponsored and financially backed AB5. But the Court of Appeal’s overturning of the lower court decision was on mixed grounds, laying the groundwork for an appeal to the state’s highest court. The lower court decision and the appellate court action involved several complicated legal questions involving among other things how Prop 22 works alongside the state’s workers’ compensation program and the ability of the state legislature to amend the provisions of Prop 22.

The first brief to the State Supreme Court was filed earlier this month by the SEIU local and international unions representing Castellanos and other named plaintiffs. It supports the lower court decision that Prop 22 is unconstitutional. The state is defending Prop 22, as it is required to defend the vote of the people. That sets up the irony of the California attorney general’s office under Rob Bonta defending AB5’s existence in the lawsuits brought by Olson/Uber/Postmates and the CTA, while also defending the Prop 22 initiative vote from 2020 that blocked AB5 from implementation against gig drivers.

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The second annual F3: Future of Freight Festival will be held in Chattanooga, “The Scenic City,” this November. F3 combines innovation and entertainment — featuring live demos, industry experts discussing freight market trends for 2024, afternoon networking events, and Grammy Award-winning musicians performing in the evenings amidst the cool Appalachian fall weather.

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