Judge dismisses Uber challenge of gigwork law

A federal judge on Friday dismissed a lawsuit in which Uber and Postmates challenged the constitutionality of AB5, California’s gigwork law.

U.S. District Court Judge Dolly Gee in Los Angeles did leave the door open for Uber and Postmates to file a more limited lawsuit by Oct. 9 if they had new evidence that their rights were violated. Uber, which is in the process of buying Postmates, implied that it would do so.

“The court’s order granted us permission to amend our complaint,” the company said. “The enactment of even newer bills granting several additional exemptions to AB5 makes it crystal clear — now more than ever — that this law is irrational and unconstitutional, and we look forward to presenting those arguments to the court.”

Uber and Postmates, along with an Uber driver and a Postmates courier, sued California in late December, saying that AB5 unfairly targeted “modern appbased” companies while granting dozens of exemptions to professions that heavily lobbied the Legislature. The case is Olson vs. California.

Both companies rely on independent contractor workforces, and say that reclassifying them as employees would undercut their business models. In February, Gee rejected the two companies’ request to temporarily halt enforcement of AB5 against them.

AB5, which took effect Jan. 1, makes it much harder for companies to claim that workers are not employees. It codifies a 2018 California Supreme Court decision known as Dynamex that says workers are employees unless all parts of an ABC test are met: (A) they work free from a company’s control; (B) they do work outside the company’s usual course of business; and (C) they have independent enterprises doing that type of work.

“Uber, Postmates, and other gig companies have tried every possible strategy to evade California law, but court after court has rejected their flimsy legal arguments,” said Jill Habig, president of the Public Rights Project, an Oakland nonprofit. that believes gig workers should be employees. “It’s time for them to stop exploiting their workers and start following the law.”

Attorney General Xavier Becerra’s office said it was pleased with the ruling.

Separately, Becerra and the city attorneys of San Francisco, Los Angeles and San Diego are suing Uber and Postmates, alleging they are violating AB5 and hurting drivers by improper classification. The companies say they think they meet AB5’s requirements. Meanwhile, they and other gigeconomy companies are seeking an exemption to AB5 by spending $181 million on Proposition 22, a November ballot measure that would permanently keep their drivers and couriers, as well as those of DoorDash, Postmates and Instacart, as independent contractors.

Uber had sought to have Becerra’s case against it and Lyft postponed until it received a ruling in its federal case with Postmates challenging AB5’s constitutionality.

In the federal case, Uber and Postmates contended that AB5 violates their due process rights because it would prevent drivers and couriers “from pursuing their chosen occupation as business owners in the sharing economy” and “transform (Uber and Postmates) from technology companies into taxi and delivery companies.”

Gee rejected that contention, as well as most of the companies’ other arguments, in her 16page decision.

“Even if Individual Plaintiffs’ employment classification does change under AB5, they still have the option of working as parttime drivers and couriers, provided that their employers abide by California labor and unemployment insurance laws pertaining to employees,” she wrote.

Another argument by Uber and Postmates was that AB5 violates the U.S. and California contract clauses because the drivers and couriers sign contracts to work as contractors. “Plaintiffs should have foreseen that the labels the parties placed on their relationship were not dispositive and that Individual

Plaintiffs could be reclassified as employees,” Gee wrote.

Gee said lawmakers were entitled to grant exemptions from AB5 for professions with licenses that require extensive education and training, like doctors and lawyers, while denying exemptions to companies with transportation licenses. She also said the Legislature could use its judgment to draw some arbitrary distinctions.

The judge said that Uber and Postmates could file an amended lawsuit limited to their arguments about equal protection, due process and the contracts clause. They have until Oct. 9 to file the lawsuit or indicate that they won’t do so. Chronicle staff writer Bob Egelko

contributed to this report.