ABC Test Upheld: Ninth Circuit Says App Drivers Are Employees for Wage Claims Despite Arbitration Agreements

SAN FRANCISCO — A state may classify drivers for ride-hailing and delivery apps as employees for the purpose of wage claims, and may forbid the platforms from contracting around that classification, the Ninth Circuit held on Tuesday, rejecting the argument that the Federal Arbitration Act preempts a statute that applies the ABC test to app-based work. The decision in Rideway Inc. v. Delgado clears the way for thousands of back-pay claims under a 2024 state law and reopens, outside California, a question that Proposition 22 had closed inside it.

"Calling a worker a partner does not change what the work is," the panel wrote.

The statute

The law, enacted in 2024 over the platforms' opposition, provides that for claims under the state's minimum wage, overtime and expense-reimbursement statutes, a person who provides transportation or delivery services through an app is an employee of the platform unless the platform proves the three elements of the ABC test: that the worker is free from the platform's control, that the work is outside the platform's usual course of business, and that the worker is engaged in an independently established business of the same kind. It further provides that the classification cannot be waived by agreement, and that any provision of a contract purporting to do so is void. It says nothing about arbitration.

The challenge

Rideway and two other platforms sued the state labor commissioner before the law took effect. Their drivers, they said, had each signed agreements designating them independent contractors and requiring individual arbitration of any dispute; the statute's anti-waiver clause, they argued, nullified those agreements and was therefore preempted by the FAA under AT&T Mobility v. Concepcion (2011) and Epic Systems v. Lewis (2018). They argued in the alternative that the statute's application to app-based platforms alone, while leaving taxi companies and couriers under the common-law control test, denied them equal protection. The district court rejected both arguments and denied an injunction.

What the Ninth Circuit held

1. No FAA preemption. The FAA, the court said, protects the agreement to arbitrate, not the substantive terms a party would like to enforce in arbitration. The statute leaves the drivers' agreements fully enforceable: every claim under it may be sent to individual arbitration, and the platforms' class waivers stand. What the statute forbids is a contractual relabeling of the relationship, which is a rule of state labor law, not a rule about arbitration. A state that makes its minimum wage non-waivable does not disfavor arbitration, and neither does a state that makes its classification rule non-waivable. The court distinguished Concepcion and Epic as cases about rules that conditioned enforcement of an arbitration agreement on the availability of class procedures.
2. The transportation-worker question left open. The drivers argued that they are "workers engaged in interstate commerce" exempt from the FAA altogether under Southwest Airlines v. Saxon (2022) and Bissonnette v. LePage Bakeries (2024). Because the statute survives even if the FAA applies, the court did not decide the point.
3. No equal protection violation. Following its en banc decision in Olson v. California (2024), which upheld AB 5's occupational exemptions, the court held that the legislature could rationally address app-based work first, as the sector where misclassification claims were most numerous.
4. Prong B. The court did not decide whether any particular driver is an employee, but observed that a platform whose business is providing rides will have difficulty showing that driving is outside the usual course of that business — the element on which ABC-test cases against platforms have turned since Dynamex.

Calling a worker a partner does not change what the work is.

From the opinion

How it fits the national picture

The decision does not affect California, where Proposition 22 — approved by voters in 2020 and upheld by the California Supreme Court in Castellanos v. State in 2024 — removes app drivers from AB 5 and treats them as contractors with guaranteed minimum earnings and limited benefits. Nor does it affect the states, Washington among them, that have legislated the opposite way, confirming contractor status in exchange for pay floors. What it does is confirm that a state choosing the ABC route may close the contractual exit, and that the FAA will not reopen it. The Department of Labor's own independent-contractor rule, which turns on economic reality rather than an ABC test, governs federal overtime claims and is unaffected.

What happens next

The platforms have fourteen days to seek rehearing en banc, and have said they will petition the Supreme Court if rehearing is denied, framing the case as a conflict with the FAA decisions. Drivers' claims under the statute, stayed pending the appeal, will proceed — in arbitration where the agreements require it — with the ABC test applied. Back pay for expenses, minimum wage shortfalls and overtime runs from the statute's effective date, and the state has begun its own enforcement audits.

The Counsel will report the rehearing petition and any Supreme Court filing. Drivers in the state with unpaid expense or wage claims should note that the statute's limitation period runs from each pay period; a labor-law attorney or the state labor commissioner's office can advise on filing.

This report is for general information only and is not legal advice. Readers should consult a licensed attorney about their own circumstances. Docket numbers and citations are to the official reporters unless otherwise stated.