Articles from June 2021

In 2019, the California legislature passed Assembly Bill 5 (“AB 5”), popularly known as California’s “Gig Worker Law.” The new law was designed to regulate companies that hire gig workers in large numbers, such as Uber and Lyft, by making it more difficult to classify them as independent contractors. In 2020, Uber, Lyft, and other gig economy companies responded by spending over $200 million to back Proposition 22, which sidesteps AB 5 by providing that an “app-based driver” is an independent contractor, not an employee, if the conditions of the law are met. Proposition 22 was billed as a major win for Uber and Lyft in their effort to continue classifying their drivers as independent contractors.

In Hassell v. Uber Technologies, Inc., No. 20-cv-04062-PJH (N.D. Cal. June 21, 2021) (slip op. available here), Uber attempted to bring to bear Proposition 22 to abate the plaintiff’s claims based on misclassification as an “independent contractor,” rather than an “employee,” when working as an Uber Eats driver. The district court, however, was not convinced that Uber had made its case for dismissal of the plaintiff’s claims under Proposition 22. Id. at 4.

As a matter of background, in Dynamex Operations West v. Superior Court, 4 Cal.5th 903 (2018), the California Supreme Court held that the “ABC test” applied to determine whether a worker qualifies as an “employee” or “independent contractor” for purposes of California’s wage orders. See slip op. at 6. The ABC test focuses on (a) the putative employer’s control of the worker, (b) whether the work is outside the usual course of business, and (c) whether the worker is customarily engaged in an independently established trade. Id. AB 5 codified the ABC conditions articulated in Dynamex as part of the Labor Code. Id. Proposition 22, the relevant provision of which has been codified as Business & Professions Code § 7451, provides different conditions specifically for classifying app-based drivers as independent contractors “[n]otwithstanding any other provision of law.” Id. at 7.

In Hassell, Uber argued that section 7451 “‘effectively repealed’ the ABC test ‘as to delivery people.’” Slip op. at 7. According to Uber, Proposition 22 required dismissal of the plaintiff’s claims based on misclassification both before and after the effective date of section 7451, in that plaintiff “makes no effort” to plead that the conditions for finding independent contractor status in section 7451 were not met. Id.

The district court noted that “the abatement argument appears to raise novel questions in a rapidly developing area of California law. That novelty aside, the parties’ briefing on the issues implicated by that argument falls short.” Slip op. at 4. Given that the court could not determine on the papers whether section 7451 abated the plaintiff’s claims, the court denied Uber’s motion to dismiss to the extent it was based on abatement. Id. at 16. The district court also rejected Uber’s contention that the plaintiff was required to affirmatively allege in his complaint Uber’s non-compliance with section 7451. The court observed that section 7451 does not address whether the “app-based driver” or the “network company” bears the burden of showing that the conditions of the section are, or are not, satisfied. Id. at 16.

The district court’s decision potentially sets the stage for a summary judgment motion as to whether Uber’s employment of the plaintiff met the conditions in section 7451 and whether the plaintiff’s claims based on misclassification are abated. Anticipating this, the district court helpfully detailed the deficiencies that it perceived in both Uber and the plaintiff’s positions on the issues. Slip op. at 16-23. Perhaps, with this guidance in mind, the novel issues presented by the application of Proposition 22 to the plaintiff’s claims will be resolved in the summary judgment context.

Authored by:
Robert Friedl, Senior Counsel
CAPSTONE LAW APC

In Bailey v. Rite Aid Corporation, Defendant Rite Aid recently petitioned the Ninth Circuit for permission to appeal an order certifying a class of California consumers who purchased Rite Aid gelcaps (an acetaminophen product) labeled as “rapid release.” See Petition for Permission to Appeal Under Federal Rule of Civil Procedure 23(f), Bailey v. Rite Aid Corporation, No. 21-80061 (9th Cir. June 9, 2021) Dkt. No. 1-3 (“Petition”) (petition available here).

According to the plaintiff, Rite Aid gelcaps labeled as “rapid release” are sold in Rite Aid stores within “eye-view” of less expensive Rite Aid acetaminophen tablets that are not labeled “rapid release.” The plaintiff’s theory of liability is that because both products are within “eye-view,” and only one product is labeled “rapid release,” reasonable consumers would conclude that the gelcaps are faster-acting than the tablets, when in fact they are not. See Bailey v. Rite Aid Corporation, No. 4:18-cv-06926-YGR, N.D. Cal. April 28, 2021 (order granting in part and denying in part motion for class certification; order re: motions to seal, slip op. available here) (“Bailey”). The district court accepted the plaintiff’s theory and concluded that whether a reasonable consumer is likely to be deceived by Rite Aid gelcaps’ “rapid release” claim can be resolved by common evidence on a class-wide basis. Id. at 7-8.

Rite Aid states in its petition, “[t]his is not a typical product mislabeling case where the challenged product label is false or misleading on its face.” Petition at 1 (emphasis in original). That is true. “[The plaintiff]’s theory of liability requires a comparison by consumers of the label and price of the Rite Aid gelcaps against the labels and prices of cheaper Rite Aid acetaminophen tablets placed near the gelcaps.” Slip op. at 5 (emphasis added).    

That is no bar to liability. It is indisputable that consumers compare labels when shopping for products. The plaintiff’s “eye-view” theory simply applies the merchandising principle that in comparing products, in-store product placement and layout strategy has a powerful influence on consumers’ purchasing decisions. Therefore, as Bailey demonstrates, consumer deception in labeling cases need not be limited to the four corners of a product’s label. Rather, the context of how products are presented in stores—what consumers see—can also deceive.

Authored by:
Robert Friedl, Senior Counsel
CAPSTONE LAW APC