Uber (NYSE:UBER) and its subsidiary Postmates faced a setback on Monday as a U.S. appeals court rejected their challenge to a California law that could mandate the companies to classify drivers as employees rather than independent contractors.
An 11-judge panel of the 9th U.S. Circuit Court of Appeals in San Francisco upheld a lower court’s decision, stating that Uber failed to demonstrate that the 2020 law, known as AB5, unfairly targeted app-based transportation companies while exempting other industries.
The court explained, “There are plausible reasons for treating transportation and delivery referral companies differently from other types of referral companies.” Circuit Judge Jacqueline Nguyen noted that the California legislature identified transportation and delivery companies as major contributors to the problem of worker misclassification.
Representatives for Uber and the California attorney general’s office did not immediately respond to requests for comment.
Employees classified under AB5 are entitled to benefits such as minimum wage, overtime pay, expense reimbursements, and other protections not extended to independent contractors. Uber, Postmates, and similar companies typically classify workers as contractors to manage costs.
AB5 imposes stringent criteria for proving that workers are independent contractors. Companies must demonstrate that workers operate independently, are not under direct control, and are not engaged in the company’s usual course of business.
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