A federal appeals court on Friday reinstated a challenge to Seattle's first-in-the-nation law allowing drivers of ride-hailing companies such as Uber and Lyft to unionize.
The city's 2015 measure requires companies that hire or contract with drivers of taxis, for-hire transportation companies and app-based services to bargain with them on issues such as pay and working conditions if a majority show they want to be represented.
A three-judge panel of the 9th U.S. Circuit Court of Appeals unanimously said the measure is subject to challenge under federal antitrust law, and it sent the case back to U.S. District Judge Robert Lasnik in Seattle to determine whether the measure is, in fact, impermissible.
The law, which is blocked pending legal challenges, has been seen as a test case for regulating the app-based 21st century workforce, where companies often hire short-term contractors for flexible, temporary jobs lacking the benefits traditionally associated with union work.
The city said letting drivers bargain over their working conditions would protect workers and make the industry safer, but critics said permitting them to do so would have dire consequences for the popular services in Seattle, raising prices for consumers and stifling competition.
Two lawsuits — one by the U.S. Chamber of Commerce on behalf of the companies, and one by the National Right to Work Foundation on behalf of 11 drivers — challenged the law. Friday's ruling came in the Chamber of Commerce case.
Caleb Weaver, an Uber spokesman, called it "a win for rideshare drivers, riders, and the entire Seattle community," while labor groups lamented it.
In a statement emailed by the Teamsters Union, which had been selected to represent the drivers under the law, Uber and Lyft driver Don Creery said he and others were disappointed.
"Anti-trust laws were put in place to protect the little guy from monopolistic practices from large corporations, not to shield a company like Uber — valued at over $70 billion — from negotiating with its workers over fair pay and working conditions," Creery said.
The Seattle City Attorney's Office was reviewing the decision and had no immediate comment, said spokesman Dan Nolte.
"We are relieved that this ruling means that independent drivers who pick up rides through ride-sharing apps are no longer under imminent threat of being forced under a union monopoly and compelled to pay union fees just to pick up passengers within Seattle city limits," Mark Mix, president of the National Right to Work Foundation, said in a written statement.
Under the federal Sherman Antitrust Act — the 1890 law designed to prevent business monopolies from artificially inflating prices or undermining competitors — collusion between independent actors to set prices is illegal.
But the Supreme Court has held that states can still act to regulate their own economies, and even private businesses or lesser government entities can act in anticompetitive ways if doing so supports clear state policy and is supervised by the state.
Lasnik ruled that Seattle should benefit from that exemption. The appeals court judges — Milan Smith, Mary Murguia and Eduardo Robreno — disagreed. Last September, they blocked the law from taking effect, and Friday they found Washington state had articulated no such policy and is not regulating the rideshare economy.
"Digital platforms like Uber and Lyft have become highly interconnected with modern economic and social life, and present novel challenges and contexts for regulation," they wrote. "Nevertheless, it is not our role to make policy judgments properly left to the Washington state legislature."
The appeals court judges affirmed another part of Lasnik's decision, saying Seattle's measure did not violate federal labor law.
With the appeals court deciding that Seattle is not immune from the antitrust law, the case returns to U.S. District Court, where the sides are expected to fight over another point: whether the law is impermissible under the Sherman Act.
Even some business actions that might otherwise be barred can be allowed if a court finds that, given the broader context of the actions, they actually promote rather than curb competition.