In recent years, few industries have been subjected to more new regulations than the gig economy. States, cities, and even the federal government have piled new requirements on app-based companies and the independent contractors who provide services through them.
But that trend may have finally reached its limit. A recent string of court decisions have checked some of the more aggressive attempts to regulate gig work. The lesson for lawmakers is that established legal rules still apply to new industries.
Cities and states have been targeting gig work for years. Even before the Covid-19 pandemic, places like New York City and Seattle were experimenting with pay mandates and bargaining requirements. California went further, adopting the strictest worker-classification law in the country. Although ostensibly aimed at worker classification across multiple industries, the law’s real target was gig work.
That trend accelerated during the pandemic. Seattle adopted multiple new regulations purportedly grounded in the public health emergency, including a premium pay ordinance. Ballot initiatives in Bellingham, Washington and Portland, Maine proposed strict tests to reclassify gig workers. And other cities adopted new rules regulating the contractual relationship between gig companies and the workers who use their platforms.
Even after the pandemic subsided, states kept pushing. Colorado lawmakers are considering a “transparency” bill that would require gig platforms to disclose competitively sensitive information. And lawmakers in other states have contemplated enacting their own versions of AB 5, using the same strict classification test as California.
A similar story is playing out at the federal level. The Department of Labor and the National Labor Relations Board are both considering stricter classification tests. These efforts are being framed as part of a broader push to regulate the gig economy.
But such efforts may have hit their limits. In the last few weeks, supporters of stricter gig economy regulation suffered several defeats in court.
The Washington Supreme Court ruled for Instacart in its challenge to Seattle’s premium-pay ordinance. Instacart alleged that by requiring only app-based companies to pay the premiums, the ordinance treated app-based food delivery companies worse than other delivery services.
In response, the city argued that even if the ordinance targeted app-based companies, the targeting was perfectly constitutional. The court disagreed. It held that such targeting, if proven, would violate the company’s constitutional rights. It sent the case back to the trial court to let Instacart prove its claims.
In Castellanos v. State, a California appellate court rejected a challenge to Proposition 22, a law—adopted by a voter initiative after California passed AB 5—that exempts certain gig workers from the classification test of AB 5. A group of drivers and unions sued the state, arguing that Prop 22 was unconstitutional for several reasons, including because it infringed on the legislature’s authority over the workers’ compensation system.
The appellate court rejected that argument, reasoning that the California Constitution confers authority over that system on the legislature and the electorate acting through the initiative power. It held that Proposition 22 was constitutional and enforceable, save for a provision restricting the legislature’s ability to amend the initiative in the future.
Third, the US Court of Appeals for the Ninth Circuit ruled in favor of Uber and Postmates in their challenge to the enforcement of AB 5. The companies argued that AB 5 improperly targeted their businesses while exempting similar ones. Like the Washington Supreme Court, the Ninth Circuit agreed that targeting companies out of pure dislike—or “animus”—is unconstitutional—and sent the case back to the district court.
What’s most remarkable about these decisions isn’t their substance. Two are preliminary decisions that merely allowed the cases to continue. What’s remarkable is who’s issuing them. California’s and Washington’s courts are some of the most receptive to efforts to regulate big business. The judges issuing these decisions are no pro-business ideologues, but ones you would expect to favor tighter regulation. Yet even they are pushing back.
And if even those judges think these laws go too far, that spells trouble for similar laws in other states. Lawmakers should therefore take note. They should keep in mind that even when they’re regulating new industries, established legal norms still apply. Covid-19 didn’t suspend the Constitution, and gig companies are entitled to due process and equal protection just like traditional industries are.
Of course, that doesn’t mean lawmakers should try to shoehorn new gig companies into old boxes. Gig work truly is different from what came before it. It is more open, more flexible, and more efficient than any previous way to work. Lawmakers should collaborate with workers and companies to craft regulatory approaches that preserve the best parts of gig work. Unilateral top-down dictates will generate only more litigation. And as the recent court decisions show, that litigation isn’t likely to turn out the way these lawmakers hoped.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Rob McKenna is former Washington state attorney general and Orrick partner, and head of the firm’s public policy practice.
Daniel Rubens is a partner in Orrick’s appellate practice.
McKenna and Rubens represented the Washington Food Industry Association and Instacart in Wash. Food Indus. Ass’n v. City of Seattle. Instacart is a member of Protect App-Based Drivers & Services, a coalition that proposed Prop 22 and intervened in Castellanos to defend the initiative.
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