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(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 more difficult for them to save money by treating workers as independent contractors.
In a major win for app-based services that heavily rely on contractors, the San Francisco-based 9th U.S. Circuit Court of Appeals said the state must face claims that the law known as AB5 is unconstitutional because it improperly singles out the industry while exempting many others.
The decision comes after a California state appeals court on Monday revived a ballot measure approved by nearly 60% of voters in 2020 that exempts app-based transportation services such as Uber and rival Lyft Inc. from the scope of AB5, which had been struck down by a judge.
Uber and the California Attorney General's office did not immediately respond to requests for comment on the decision.
AB5, which took effect in 2020, imposes a higher bar to show that workers are independent contractors rather than employees, who have greater legal protections and can cost companies up to 30% more.
California lawmakers exempted many jobs and businesses from AB5's reach, including "referral agencies" that connect workers and customers, but explicitly did not exempt app-based transportation and delivery services.
That means Uber is subject to the law while pet-sitting service Wag, which has been called "Uber for dogs," is not.
A three-judge 9th Circuit panel on Friday said the “piecemeal fashion” of the exemptions to the law was enough to keep Uber's lawsuit alive.
“The exclusion of thousands of workers from the mandates of AB5 is starkly inconsistent with the bill's stated purpose of affording workers the 'basic rights and protections they deserve,’” Circuit Judge Johnnie Rawlinson wrote for the court.