(Reuters) — A federal appeals court on Friday revived a lawsuit by Uber Technologies Inc. and subsidiary Postmates Inc. challenging a California law that makes it harder for them to save money by treating workers as independent contractors.
In a major win for app-based services that rely heavily on contractors, the San Francisco-based 9th US Circuit Court of Appeals said the state must face claims that the law known as AB5 is unconstitutional because it unfairly singles out the industry while as it excludes many others.
The decision comes after a California state appeals court on Monday revived a ballot measure approved by nearly 60% of 2020 voters that exempts app-based ride-hailing services like Uber and rival Lyft Inc. from the scope of AB5, which had been struck down by a judge.
Uber and the California attorney general̵7;s office did not immediately respond to requests for comment on the decision.
AB5, which went into effect in 2020, sets a higher bar to show that workers are independent contractors rather than employees, which have greater legal protections and can cost businesses up to 30% more.
California lawmakers exempted many jobs and businesses from AB5’s reach, including “referral agencies” that connect workers and customers, but did not specifically exempt app-based transportation and delivery services.
That means Uber is subject to the law while pet-sitting service Wag, which has been dubbed the “Uber for dogs,” is not.
A three-judge 9th Circuit panel said Friday that the exceptions to the law were enough to keep Uber’s lawsuit alive.
“The exclusion of thousands of workers from AB5’s mandate is completely inconsistent with the bill’s stated purpose of giving workers the ‘fundamental rights and protections they deserve,'” Circuit Judge Johnnie Rawlinson wrote for the court.