Lawmakers Shouldn’t Forget the Constitution Applies to Gig Work

In recent years, there has hardly been an industry that has been exposed to more new regulations than the gig economy. States, cities, and even the federal government have imposed new requirements on app-based companies and the independent contractors that deliver services through them.

But this trend may finally have reached its limit. A number of recent court decisions have halted some of the more aggressive attempts to regulate gig work. The lesson for lawmakers is that established legal rules continue to 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 salary targets and bargaining requirements. California went a step further and passed the most stringent worker classification law in the country. Although the law was ostensibly aimed at classifying workers in multiple industries, the law’s real target was public sector employment.

This trend accelerated during the pandemic. Seattle has enacted several new regulations said to be due to the public health emergency, including a bounty payment ordinance. Ballot initiatives in Bellingham, Washington and Portland, Maine, proposed stringent tests to reclassify gig workers. And other cities have passed new rules governing 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 considered enacting their own versions of AB 5, using the same rigorous classification test as California.

A similar story is playing out at the federal level. Both the Department of Labor and the National Labor Relations Board are considering more stringent placement tests. These efforts are part of a broader push to regulate the gig economy.

But such efforts may have reached their limits. In recent weeks, advocates of stricter gig economy regulation have suffered multiple defeats in court.

The Washington Supreme Court ruled in favor of Instacart in its challenge to Seattle’s premium pay regulation. Instacart claimed that the regulation, which only requires app-based companies to pay the premiums, treats app-based food delivery companies worse than other delivery services.

In response, the city argued that even if the ordinance targeted app-based businesses, that targeting was entirely constitutional. The court disagreed. It concluded that such targeting, if proven, would violate the company’s constitutional rights. The case was remanded to the trial court to allow Instacart to prove its claims.

In Castellanos v. State, a California appeals court denied a challenge to Proposition 22, a law passed by a ballot group after the passage of AB 5 in California that exempts certain gig workers from the AB 5 assessment test. A group of drivers and unions sued the state, saying Prop 22 was unconstitutional on a number of grounds, including violating the legislature’s powers over the workers’ compensation system.

The Court of Appeals rejected this argument, arguing that the California Constitution confers authority over this system on the legislature and voters, who act through initiative power. It ruled that Proposition 22 was constitutional and enforceable except for one provision that limited the legislature’s ability to change the initiative in the future.

Third, the US Circuit Court of Appeals for the Ninth Circuit ruled in favor of Uber and Postmates in their challenge to AB 5’s enforcement. The companies argued that AB 5 unlawfully targeted their companies and exempted similar companies. Like the Washington Supreme Court, the Ninth Circuit agreed that it was unconstitutional to target companies out of sheer dislike — or “animus” — and remanded the case to the district court.

The most remarkable thing about these decisions is not their content. Two were provisional decisions that only allowed the proceedings to continue. What matters is who issues them. California and Washington courts are among the most receptive to efforts to regulate large corporations. The judges making these decisions are not pro-business ideologues, but one would expect them to advocate tighter regulation. But even they fight back.

And if even those judges think these laws go too far, it spells trouble for similar laws in other states. The legislature should therefore take note. You should keep in mind that established legal norms still apply when regulating new industries. Covid-19 has not overridden the Constitution and gig companies are entitled to due process and equal protection just like traditional industries.

Of course, that doesn’t mean lawmakers should try to box new gig companies into old boxes. Gig work is really unlike anything before it. It is more open, flexible and efficient than any previous way of working. Lawmakers should work with workers and businesses to develop regulatory approaches that preserve the best aspects of gig work. Unilateral directives from above will only lead to more litigation. And as recent court decisions show, this lawsuit likely won’t 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.

Information about the author

Rob McKenna is a former Washington State Attorney General and an Orrick partner and head of the firm’s public policy practice.

Daniel Rubens is a Partner in Orrick’s Appeals Practice.

McKenna and Rubens represented the Washington Food Industry Association and Instacart in Wash. food industry Ass’n vs. 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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