Ninth Circuit Rejects Latest Challenge to AB 5 in Olson v. California

In the latest court challenge to California’s Assembly Bill 5 (“AB 5”), the Ninth Circuit recently decided to uphold the law’s constitutionality under the Equal Protection Clause. Assembly Bill 5 (“AB 5”), now incorporated into California’s labor code, was passed by lawmakers to address what was then a systemic problem of worker misclassification by California employers, specifically employers in the delivery and transportation industries.

To help streamline proper classification, AB 5 codifies the “ABC test” set out by the California Supreme Court in Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018) 4 Cal.5th 903. The ABC test prohibits employers from classifying their workers as independent contractors unless all three of the following conditions are satisfied:

(a) the worker is free from the control and direction of the employer as it relates to the performance of the work;

(b) the worker performs work outside the usual course of the employer’s business; and

(c) the worker routinely performs work in an independently established trade, occupation, or business that is of the same type as the work being performed for the employer.

However, the California legislature did not intend for AB 5 to apply equally across all industries. Workers such as real estate agents, hair stylists, doctors, lawyers, travel agents, and other professionals are excluded from the ABC test. For those carved out of the ABC test, the “Borello test”, or the “right to control” test, set out in S.G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 769 P.2d 399 applies. In contrast to the simpler three-part ABC test, the Borello test involves eleven factors to consider when classifying workers. And unlike the ABC test, employers do not need to meet all eleven Borello test factors to benefit from independent contractor classification.

The latest challenge to AB 5 to make it to the Ninth Circuit arises from Olson v. California (9th Cir. 2024) 88 F.4th 781. Appellants Uber, Lydia Olson (Uber driver), Postmates, and Miguel Perez (Postmates driver) challenged the constitutionality of subjecting certain occupations to a different worker classification test depending on the type of work performed. The appellants argued that AB 5 unconstitutionally targeted app-based delivery and rideshare drivers, since, for example, AB 5 automatically subjects these workers to the ABC test, while workers who provide functionally similar services on other apps such as “Wag!”, commonly referred to as “Uber for dogs”, are not.

In the end, the Ninth Circuit found plausible reasons why the legislature would pass the law and thus upheld its constitutionality. Mainly, the en banc panel found that because the legislature passed AB 5 as a reaction to widespread misclassification of workers that was in fact largely carried out by delivery and transportation companies, workers in that industry could lawfully be subject to a different classification test than workers in other industries.

Click here for a link to the opinion.