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Court says California regulation on Uber drivers is justified, but labor fight continues

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Court says California regulation on Uber drivers is justified, but labor fight continues

A California law classifying Uber and other ride-hail and delivery drivers as employees rather than independent contractors is constitutional, the U.S. 9th Circuit Court of Appeals ruled Monday.

The effect of the decision on the companies’ operations and the broader gig economy in California wasn’t immediately clear, given ongoing litigation over a subsequent, voter-backed proposition that exempted app-based drivers from the employee classification.

Still, legal experts said the ruling is important, in part because it reaffirms the right of state lawmakers to regulate large industries and corporations without running afoul of the “equal protection” rights of such companies under the U.S. Constitution.

“From a long-term and legal perspective that’s not just about Uber, that’s the important takeaway here,” said Veena Dubal, a UC Irvine law professor who studies the intersection of law, labor and technology.

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The decision on the law, known as Assembly Bill 5, could hold weight as other states, including Massachusetts, battle with Uber and similar companies over regulating driver pay and classification, said Ryan Wu, an attorney at Capstone Law.

“This case gives legislators greater certainty that AB5-type legislation will survive constitutional challenges,” Wu said. “It puts them on firmer ground.”

The decision by an 11-judge 9th Circuit panel undoes one made last year by a three-judge panel of the same court. The smaller panel found that lawmakers had acted with animus toward Uber, Postmates and other ride-hail and delivery services by crafting a law that targeted them specifically and not other app-based companies.

In Monday’s opinion, Judge Jacqueline H. Nguyen wrote that this was not the case and that lawmakers had legitimate reasons for passing the 2019 law.

“There are plausible reasons for treating transportation and delivery referral companies differently from other types of referral companies, particularly when the legislature perceived transportation and delivery companies as the most significant perpetrators of the problem it sought to address — worker misclassification,” Nguyen wrote.

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Attorneys for the companies said they were considering their legal options, including whether to appeal the decision to the U.S. Supreme Court.

But they downplayed the impact of the ruling on their operations in the state, given the passage in 2020 of Proposition 22, which allowed for their drivers to be classified as contractors.

Theane Evangelis, an attorney for the companies, said AB5 had “threatened to take away the flexible work opportunities of hundreds of thousands of Californians,” but voters had “rejected” such regulations with the proposition.

Noah Edwardsen, an Uber spokesperson, said Monday’s decision “does not change the status of the law in California in any way.”

Labor leaders took a different stance. Lorena Gonzalez, principal officer of the California Labor Federation and a former legislator who authored AB5, called Monday’s decision “a victory for all workers in the state, but especially the chronically misclassified workers in ride-share and delivery jobs.”

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Gonzalez said the smaller panel’s decision last year “really put at risk all labor law,” and Monday’s ruling set that straight. She said AB5 continues to ensure that California workers are protected, not just at ride-hail companies but in many labor sectors.

Gonzalez also noted that the fate of Proposition 22 is unsettled, and it could be overturned by the California Supreme Court, which is weighing its legitimacy.

The offices of Gov. Gavin Newsom and Atty. Gen. Rob Bonta did not immediately respond to requests for comment Monday.

The ruling is the latest in a tangle of court decisions over who may be treated as an independent contractor and who is an employee.

AB5 has spurred numerous legal challenges from freelance workers and trucking companies that so far have been unsuccessful.

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Proposition 22, a ballot measure passed by nearly 60% of state voters in 2020, exempts app-based transportation services such as Uber from AB5. Ride-hail companies poured huge amounts of money into campaigns backing the proposition.

Regardless of what happens with Proposition 22, Nguyen noted, the federal decision is relevant because the measure was not retroactive, and there are pending state claims against Uber and Postmates for violating AB5 prior to 2020 — including by misclassifying drivers.

A federal judge in California last year ruled that Grubhub misclassified a former delivery driver, Raef Lawson, as an independent contractor and therefore improperly denied him minimum-wage pay.

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State regulators identify wildfire neighborhoods targeted for insurance relief

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State regulators identify wildfire neighborhoods targeted for insurance relief

California regulators Wednesday disclosed which areas of the state insurers will have to cover if they want to take advantage of financial incentives intended to resolve the homeowners’ insurance crisis.

In Los Angeles County, those areas include ZIP Codes in the Santa Monica Mountains, the San Gabriel Mountains and parts of the Santa Clarita Valley, according to draft regulations released by the Department of Insurance.

Last fall, amid the pullback of insurers from wildfire neighborhoods, state Insurance Commissioner Ricardo Lara announced his Sustainable Insurance Strategy. It was the biggest overhaul of industry regulations since the 1988 passage of Proposition 103, which gave an elected insurance commissioner the authority to review and reject requests for rate hikes by insurers offering homeowners, auto and other lines of coverage. The new regulations are expected to be in place by the end of the year.

“We are well on our way to enacting the state’s largest insurance reform,” Lara said Wednesday. “We are being driven by data and by the meetings we have held with thousands of Californians across the state.”

Elements of the reform are predicated on a deal he reached with the industry that would allow insurers to include in their premiums the cost of reinsurance they buy to protect themselves from disasters — and to use computer models that project future claims risks, a concern due to massive wildfires caused by drought and climate change. Currently, historical claims data are used in preparing rate hike requests.

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That agreement requires large insurers to provide coverage in wildfire risk areas that is equivalent to 85% of their statewide market share. That means, theoretically, if an insurer has a 20% market share statewide, it would have to insure 17 out of 100 homes in such neighborhoods.

Smaller insurers are also targeted by the regulations, but instead of having to increase market share in distressed areas by the 85% metric, they would have to increase the number of policies they write by 5%. All companies also would have to increase their commercial policies in such areas by 5%.

The regulations released Wednesday detail how that goal would be achieved, and take a three-part “hybrid” approach that aims to maximize coverage and account for the state’s geographic diversity that includes mountainous rural areas, coastal zones and suburban neighborhoods.

One set of regulations would apply the 85% threshold to entire counties if 20% or more of properties are in “high” risk areas, as defined by maps created by the Department of Forestry and Fire Protection.

Another set would apply the threshold to “high” and “very high” fire-risk ZIP Codes if 15% or more of policyholders are being covered by the state FAIR Plan, an insurer of last resort that offers policies with minimum benefits. ZIP Codes would also be included if it is found that coverage is unaffordable based on a median-income or premium-cost calculation. The idea is to protect those with limited or fixed incomes.

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The regulations also aim to capture high fire-risk neighborhoods sprinkled in nearly every county that are not captured by the other rules.

The department plans to review coverage by insurers that seek to include the cost of reinsurance and use the new computer models to ensure they are writing insurance in distressed areas. Those that are not could face rate reductions and having to rebate premiums.

“Insurance companies need to commit to writing more policies, and my department will need to verify those commitments to hold companies accountable,” Lara said.

Carmen Balber, executive director of Consumer Watchdog, a Los Angeles consumer advocacy group, said in a statement that the draft regulations give insurers too much time to meet the coverage targets and provide affordable insurance, while giving regulators too much leeway to provide exceptions.

“Insurance Commissioner Lara’s plan gives insurance companies two years to comply but they can start to charge more immediately. After two years, insurance companies can say they can’t meet their goals and the commissioner can just move the goal posts. This was the one consumer benefit in Lara’s proposal but the exceptions swallow the rule,” she said.

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Rex Frazier, president of the Personal Insurance Federation of California, a trade group of property and casualty insurers, welcomed the move.

“We are encouraged to see continued progress on the commissioner’s Sustainable Insurance Strategy. This proposal is complex, with many trade-offs, including insurer commitments that no other state requires. However, we remain committed to working with all stakeholders to increase insurance availability and restore the health of the insurance market,” he said in written remarks.

The department issued a state map and a list of ZIP Codes affected by the proposed regulations. It also scheduled a June 26 hearing to take testimony from insurers, consumer advocates, policyholders and others.

The ZIP Codes include neighborhoods in Malibu, Beverly Hills, Topanga, Bel-Air, Beverly Glen, Duarte, Castaic and Catalina Island.

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The fast-food industry claims the California minimum wage law is costing jobs. Its numbers are fake

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The fast-food industry claims the California minimum wage law is costing jobs. Its numbers are fake

The fast-food industry has been wringing its hands over the devastating impact on its business from California’s new minimum wage law for its workers.

Their raw figures certainly seems to bear that out. A full-page ad recently placed in USA Today by the California Business and Industrial Alliance asserted that nearly 10,000 fast-food jobs had been lost in the state since Gov. Gavin Newsom signed the law in September.

The ad listed a dozen chains, from Pizza Hut to Cinnabon, whose local franchisees had cut employment or raised prices, or are considering taking those steps. According to the ad, the chains were “victims of Newsom’s minimum wage,” which increased the minimum wage in fast food to $20 from $16, starting April 1.

The rapid job cuts, rising prices, and business closures are a direct result of Governor Newsom and this short-sighted legislation

— Business lobbyist Tom Manzo, touting misleading statistics

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Here’s something you might want to know about this claim. It’s baloney, sliced thick. In fact, from September through January, the period covered by the ad, fast-food employment in California has gone up, as tracked by the Bureau of Labor Statistics and the Federal Reserve. The claim that it has fallen represents a flagrant misrepresentation of government employment figures.

Something else the ad doesn’t tell you is that after January, fast-food employment continued to rise. As of April, employment in the limited-service restaurant sector that includes fast-food establishments was higher by nearly 7,000 jobs than it was in April 2023, months before Newsom signed the minimum wage bill.

Despite that, the job-loss figure and finger-pointing at the minimum wage law have rocketed around the business press and conservative media, from the Wall Street Journal to the New York Post to the website of the conservative Hoover Institution.

We’ll be taking a closer look at the corporate lobbyist sleight-of-hand that makes job gains look like job losses. But first, a quick trot around the fast-food economic landscape generally.

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Few would argue that the restaurant business is easy, whether we’re talking about high-end sit-down dining, kiosks and food trucks, or franchised fast-food chains. The cost of labor is among the many expenses that owners have to deal with, but in recent years far from the worst. That would be inflation in the cost of food.

Newport Beach-based Chipotle Mexican Grill, for example, disclosed in its most recent annual report that food, beverage and packaging cost it $2.9 billion last year, up from $2.6 billion in 2022 — though those costs declined as a share of revenue to 29.5% from 30.1%. Labor costs in 2023 came to $2.4 billion, but fell to 24.7% of revenue from 25.5% in 2022.

At Costa Mesa-based El Pollo Loco, labor and related costs fell last year by $3.5 million, or 2.7%, despite an increase of $4.1 million that the company attributed to higher minimum wages enacted in the past as well as “competitive pressure” — in other words, the necessity of paying more to attract employees in a tight labor market.

Then there’s Rubio’s Coastal Grill. On June 3 the Carlsbad chain confirmed that it had closed 48 of its California restaurants, about one-third of its 134 locations. As my colleague Don Lee reported, Rubio’s attributed the closings to the rising cost of doing business in California.

There’s more to the story, however. The biggest expense Rubio’s has been facing is debt — a burden that has grown since the chain was acquired in 2010 by the private equity firm Mill Road Capital. By 2020, the chain owed $72.3 million, and it filed for bankruptcy. Indeed, in its full declaration with the bankruptcy court filed on June 5, the company acknowledged that along with increases in the minimum wage, it was facing an “unsustainable debt burden.”

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The company emerged from bankruptcy at the end of 2020 with settlements that included a reduction in its debt load. Then came the pandemic, a significant headwind. Among its struggles was again its debt — $72.9 million owed to its largest creditor, TREW Capital Management, a firm that specializes in lending to distressed restaurant businesses. It filed for bankruptcy again on June 5, two days after announcing its store closings. The case is pending.

Fast-food and other restaurant jobs slump every year from the fall through January, due to seasonal factors (red line); seasonal adjustments (blue line) give a more accurate picture of employment trends. The sharp decline in 2020 was caused by the pandemic.

(Federal Reserve Bank of St. Louis)

It’s worth noting that high debt is often a feature of private-equity takeovers — in such cases saddling an acquired company with debt gives the acquirers a means to extract cash from their companies, even if it complicates the companies’ path to profitability. Whether that’s a factor in Rubio’s recent difficulties isn’t clear.

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That brings us back to the claim that job losses among California’s fast-food restaurants are due to the new minimum wage law.

The assertion appears to have originated with the Wall Street Journal, which reported on March 25 that restaurants across California were cutting jobs in anticipation of the minimum wage increase taking effect on April 1.

The article stated that employment in California’s fast food and “other limited-service eateries was 726,600 in January, “down 1.3% from last September,” when Newsom signed the minimum wage law. That worked out to employment of 736,170 in September, for a purported loss of 9,570 jobs from September through January.

The Journal’s numbers were used as grist by UCLA economics professor Lee E. Ohanian for an article he published on April 24 on the website of the Hoover Institution, where he is a senior fellow.

Ohanian wrote that the pace of the job loss in fast-food was far greater than the overall decline in private employment in California from September through January, “which makes it tempting to conclude that many of those lost fast-food jobs resulted from the higher labor costs employers would need to pay” when the new law kicked in.

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CABIA cited Ohanian’s article as the source for its claim in its USA Today ad that “nearly 10,000” fast-food jobs were lost due to the minimum wage law. “The rapid job cuts, rising prices, and business closures are a direct result of Governor Newsom and this short-sighted legislation,” CABIA founder and president Tom Manzo says on the organization’s website.

Here’s the problem with that figure: It’s derived from a government statistic that is not seasonally adjusted. That’s crucial when tracking jobs in seasonal industries, such as restaurants, because their business and consequently employment fluctuate in predictable patterns through the year. For this reason, economists vastly prefer seasonally adjusted figures when plotting out employment trendlines in those industries.

The Wall Street Journal’s figures correspond to non-seasonally adjusted figures for California fast-food employment published by the Bureau of Labor Statistics. (I’m indebted to nonpareil financial blogger Barry Ritholtz and his colleague, the pseudonymous Invictus, for spotlighting this issue.)

Figures for California fast-food restaurants from the Federal Reserve Bank of St. Louis show that on a seasonally adjusted basis employment actually rose in the September-to-January period by 6,335 jobs, from 736,160 to 742,495.

That’s not to say that there haven’t been employment cutbacks this year by some fast-food chains and other companies in hospitality industries. From the vantage point of laid-off workers, the manipulation of statistics by their employers doesn’t ease the pain of losing their jobs.

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Still, as Ritholtz and Invictus point out, it’s hornbook economics that the proper way to deal with seasonally adjusted figures is to use year-to-year comparisons, which obviate seasonal trends.

Doing so with the California fast-food statistics give us a different picture from the one that CABIA paints. In that business sector, September employment rose from a seasonally adjusted 730,000 in 2022 to 741,079 in 2024. In January, employment rose from 732,738 in 2023 to 742,495 this year.

Restaurant lobbyists can’t pretend that they’re unfamiliar with the concept of seasonality. It’s been a known feature of the business since, like, forever.

The restaurant consultantship Toast even offers tips to restaurant owners on how to manage the phenomenon, noting that “April to September is the busiest season of the year,” largely because that period encompasses Mother’s Day and Father’s Day, “two of the busiest restaurant days of the year,” and because good weather encourages customers to eat out more often.

What’s the slowest period? November to January, “when many people travel for holidays like Thanksgiving or Christmas and spend time cooking and eating with family.”

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In other words, the lobbyists, the Journal and their followers all based their expressions of concern on a known pattern in which restaurant employment peaks into September and then slumps through January — every year.

They chose to blame the pattern on the California minimum wage law, which plainly had nothing to do with it. One can’t look into their hearts and souls, but under the circumstances their arguments seem more than a teensy bit cynical.

The author of the Wall Street Journal article, Heather Haddon, didn’t reply to my inquiry about why she appeared to use non-seasonally adjusted figures when the adjusted figures were more appropriate. Tom Manzo, the founder and president of CABIA, didn’t respond to my request for comment.

Ohanian acknowledged by email that “if the data are not seasonally adjusted, then no conclusions can be drawn from those data regarding AB 1228,” the minimum wage law. He said he interpreted the Wall Street Journal’s figures as seasonally adjusted and said he would query the Journal about the issue in anticipation of writing about the issue later this summer.

He did observe, quite properly, that the labor cost increase from the law was large and that “if franchisees continue to face large food cost increases later this year, then the industry will really struggle.” Fast-food companies already have instituted sizable price increases to cover their higher expenses, he observed. “The question thus becomes how sensitive are fast-food consumers to higher prices,” a topic he says he will be researching as the year goes on.

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Amazon MGM Studios and Prime Video DEI head to leave company

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Amazon MGM Studios and Prime Video DEI head to leave company

Amazon MGM Studios’ global head of diversity, equity, inclusion and accessibility will be leaving the company in August.

Latasha Gillespie, who launched the studio’s diversity, equity and inclusion program in 2018, was at Amazon for seven years, five of which were with the studio.

Gillespie will continue to work with the studio as a consultant for a period of time. She will be replaced in the head DEI role by Amanda Baker-Lane, who has more than 14 years of experience in this field, about nine of which were in various roles at Amazon.

In an internal note, Gillespie said that her departure was “bittersweet” and that she was “proud of how we positively impacted the world through our work.”

“It’s very rare that you get to jump into a new venture with the support of your current org while also elevating the people you have been growing and nurturing along the way,” Gillespie added. “I look forward to tapping into other places and spaces that I’m equally passionate about, including public speaking, podcasts, consulting and executive coaching.”

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In an internal note, Jennifer Salke, head of Amazon MGM Studios, cited Gillespie’s role in creating the Howard Entertainment Program, a partnership between the studio and Howard University, an on-site mental wellness program and several so-called pathway programs that have increased access for underrepresented groups into the industry.

“Under her leadership, we developed inclusion resources that have resulted in more equitable stories and productions,” Salke wrote.

The move comes nearly a year after a number of diversity, equity and inclusion executives parted ways with various major entertainment and media entities, including Walt Disney Co. and Warner Bros. Discovery.

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