The Antitrust Attorney Blog

Author: Aaron Gott

In my last post, I discussed how California’s newly enacted AB 1340—which allows independent contractor gig drivers to form a “union” and engage in sectoral bargaining against rideshare companies such as Uber and Lyft—likely does not provide the federal antitrust immunity that it purports to provide. This week, I’d like to discuss the other problem with AB 1340: it is likely unconstitutional.

In 2018, the Ninth Circuit decided Chamber of Commerce v. City of Seattle, striking down a Seattle ordinance that authorized rideshare drivers to engage in collective bargaining with Uber and Lyft.

So why did California just enact essentially the same law? AB 1340 revives nearly the same structure—and the same constitutional defect—under a new label, in a different locale.

Now, there is a key factual difference between the Seattle ordinance and AB 1340. Can you spot it?

The difference is that California is a state, and Seattle is a mere political subdivision. And that difference matters, because we have a dual federalist system: states on the one hand, and the federal government on the other. Cities? They are not sovereign and are irrelevant for federalism purposes. (But don’t shed any tears for municipalities: they get an ill-reasoned exemption from the active supervision prong set forth in Town of Hallie v. City of Eau Claire, plus the Local Government Antitrust Act of 1984, which immunizes them from antitrust damages and fees, thus freeing them to pursue all sorts of anticompetitive schemes with reckless abandon.)

Still, this factual difference does not save AB 1340 from the same fate as Seattle’s ordinance.

The problem is that California’s AB 1340 is not a genuine act of state regulation, but merely an attempt to declare private coordination immune from federal law.

Under Supreme Court precedent, naked attempts to immunize anticompetitive conduct are foreclosed not only by the state-action immunity doctrine. They are also subject to federal preemption.

From Seattle to Sacramento

Seattle’s ordinance authorized “qualified representatives” of for-hire drivers—eventually, the Teamsters—to bargain collectively with companies such as Uber and Lyft. Everyone agreed the ordinance facilitated private price-fixing, and the city defended it on state-action grounds. The Ninth Circuit rejected that defense.

The court held that Washington’s general authorization to regulate for-hire transportation did not clearly articulate a policy to displace competition in the ride-referral market, and that a statutory declaration purporting to exempt local regulation from the Sherman Act was not a policy to displace competition—it was an impermissible attempt to exempt municipal conduct from federal law altogether. Finally, the court confirmed that the “municipal exception” to active supervision is narrow: when private actors participate in the restraint, active state supervision is required, and cities are not “the state itself.”

The Ninth Circuit emphasized that “authority to regulate a market is not the same as authority to authorize anticompetitive conduct.” That observation speaks directly to the structure of AB 1340, even if California, unlike Seattle, acts here as the sovereign rather than its subdivision.

What the Ninth Circuit Actually Held

Two features of Chamber v. Seattle are particularly relevant.

First, the Ninth Circuit drew a sharp line between a policy to regulate and a policy to displace competition. The state statute there authorized municipalities to regulate for-hire transportation for safety and reliability reasons, but said nothing about replacing market competition with collective bargaining. The resulting ordinance therefore lacked the “clear articulation” required by Midcal.

Second, the court rejected the notion that the legislature could “immunize” municipalities from the Sherman Act by fiat. Citing Parker v. Brown, it reiterated that “states cannot give immunity to those who violate the Sherman Act by authorizing them to violate it.” A declaration of exemption, even one framed as explicit legislative intent, is not a substitute for a true regulatory program.

And in footnote 9, the court made a related and important point:

“The City’s argument that the presumption against preemption applies here is misplaced. State-action immunity is a defense to preemption.”

That is, the doctrines are not separate. If state-action immunity fails, federal law preempts.

AB 1340 and the Limits of State Sovereignty

California’s position differs from Seattle’s in one respect: a state itself has enacted the challenged framework. That distinction matters under Parker, which recognizes that the Sherman Act does not bar a state acting as sovereign from imposing market restraints “as an act of government.” But AB 1340’s flaw is not that it delegates authority to a city; it’s that it authorizes private competitors to collude and then declares their collusion immune from federal scrutiny.

That structure is inconsistent with Parker and a number of subsequent Supreme Court cases. The statute’s declaration that the “state-action antitrust exemption shall apply” does not transform private collusion into sovereign regulation. It is simply a legislative announcement that California intends to exempt certain conduct from federal law—something it cannot do. The Constitution allows states to regulate, but not to negate federal statutes.

The Federal Boundary

The Ninth Circuit’s footnote in Seattle captured the relationship succinctly: state-action immunity is a defense to preemption. When the defense fails, federal supremacy governs. The result is not a close call. AB 1340 does not replace competition with regulation; it replaces it with private collusion, then declares that collusion lawful. That is precisely the type of state-created conflict the Supreme Court’s preemption jurisprudence forbids.

A facial challenge to AB 1340 before implementation would thus rest on solid ground. The statute’s structure and purpose conflict directly with the Sherman Act and the Supremacy Clause. As Chamber v. Seattle illustrates, courts remain willing to enforce that boundary when governments—state or local—attempt to erase it.

From Seattle to Sacramento

The Seattle ordinance was straightforward. It allowed independent drivers to “collectively bargain” against app-based “driver coordinators” such as Uber and Lyft. The City appointed the Teamsters as the designated representative to negotiate rates and terms. Everyone agreed that this amounted to private price-fixing—a per se violation of the Sherman Act—but the City argued it was immune because Washington law allowed municipalities to regulate for-hire transportation services.

The Ninth Circuit rejected that argument on every front. The court held that:

1. Washington’s general authorization to regulate for-hire transportation did not clearly articulate a policy to displace competition in the ride-referral market.
2. A statutory declaration purporting to exempt local regulation from federal antitrust law was not a policy to displace competition—it was an invalid attempt to exempt state and local conduct from federal law.
3. The “municipal exception” to the active-supervision requirement is narrow: when private actors participate in the restraint, state supervision is required.

As the court put it, state law authority “to regulate a market is not the same as authority to authorize anticompetitive conduct.”

That reasoning applies squarely to AB 1340. California’s statute authorizes the same kind of horizontal coordination and then declares the result immune. It is, in substance, Seattle 2.0—a legislative replay of a theory the Ninth Circuit has already rejected.

Why AB 1340 Raises the Same (and Worse) Problems

Like Seattle’s ordinance, AB 1340 authorizes private competitors—rideshare drivers—to coordinate on pricing and output decisions. And, just as Seattle did, California attempts to pre-emptively declare that conduct exempt from federal scrutiny: “the state-action antitrust exemption shall apply.”

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Author: Aaron Gott

California Governor Gavin Newsom recently signed AB 1340 into law, a bill that purports to give more than 800,000 California rideshare drivers the right to unionize and bargain collectively over pay and working conditions. Some are celebrating the statute as a political and policy breakthrough.

In press statements, supporters called the measure a victory for “dignity and fairness” and proof that government can “deliver” where federal leaders cannot. Governor Gavin Newsom framed it as an antidote to “chaos,” praising California for “giving drivers the power to unionize.” Some might call it political theater. Others, compromise.

The Deal Behind the Law

AB 1340 emerged from a late-summer negotiation among Uber, Lyft, Governor Newsom, and organized labor. The companies backed the bill as part of a broader package that also reduced their insurance obligations. In exchange, the state created a legally sanctioned structure for “sectoral bargaining” among app-based drivers.

Beneath that compromise lies a legal problem that could, and likely should, prove fatal: the law is an attempt by one state to exempt a specific cartel of competitors from federal antitrust liability. But that is not something any state has the power to do.

What AB 1340 Does

The new law creates a sector-wide bargaining framework for app-based drivers. Drivers remain classified as independent contractors under California’s voter-approved Proposition 22, but AB 1340 allows them to elect a union-like representative to negotiate with Uber, Lyft, and other platforms.

The Public Employment Relations Board (PERB) oversees the process: it will certify representatives, set ground rules for bargaining, facilitate mediation, and approve final agreements. The bill expressly states that this system is intended to displace competition among drivers and “the state action antitrust exemption shall apply.”

In short, California has authorized independent centers of decisionmaking in the market to coordinate on price and output—the very conduct that, absent a special exemption, is per se illegal under Section 1 of the Sherman Act.

Why did lawmakers believe such a statute was necessary? Because everyone in the room—union leaders, legislators, and company executives—understood that a “union” of independent contractors is, in the eyes of federal law, just another word for a cartel. Without some form of immunity, sectoral bargaining among gig drivers would expose everyone involved in this horizontal cartel to treble damages and potential criminal liability. AB 1340 tries to solve that problem by legislating immunity.

That strategy faces serious constitutional limits—and might even be subject to a facial constitutional challenge. But, at a minimum, a federal court properly applying the law is unlikely to find that state action immunity applies to a gig-drivers’ cartel that seeks protection under AB 1340.

The Purpose of the State Action Immunity Doctrine

Since Parker v. Brown (1943), the Supreme Court has recognized that the Sherman Act does not apply to restraints imposed directly by a state acting as sovereign. The reasoning is grounded in federalism: Congress did not intend to subject state legislation itself to antitrust review.

But when a state authorizes others to restrain trade, the exemption applies only if two demanding conditions are met under California Retail Liquor Dealers Ass’n v. Midcal Aluminum Inc. (1980):

1. The state must clearly articulate and affirmatively express a policy to displace competition; and
2. The conduct must be actively supervised by the state itself.

As the Court later explained in FTC v. Phoebe Putney Health System (2013), these safeguards ensure that the restraint “is truly the action of the State,” not the product of private choice.

North Carolina State Board of Dental Examiners v. FTC (2015) tightened the second requirement further: supervision must be substantive. The state must actually review the competitive merits of the conduct and have authority to veto or modify it if inconsistent with state policy.

Why AB 1340 Fails the Test

AB 1340’s declaration that “the state action antitrust exemption shall apply” may seem to check the box for “clear articulation,” but it totally misses the point. As the Court explained in the OG state action immunity case of Parker v. Brown—all the way back in 1943—states cannot “give immunity to those who violate the Sherman Act by authorizing them to violate it”. The Court’s most recent foray into the doctrine, in NC Dental (2015), reaffirmed this principle: a state cannot simply grant market participants a free pass to commit antitrust violations, as states’ “power to attain an end does not include the lesser power to negate the congressional judgment embodied in the Sherman Act.”

Put another way, a clearly articulated policy to displace competition means a policy that displaces competition with regulation, not a policy that purports to displace antitrust law with an exemption.

AB 1340 also likely fails the active-supervision requirement. PERB’s role is to certify, mediate, and formalize collective agreements. Nothing in the statute directs the Board to analyze whether an agreement advances state policy or to assess its competitive effects. There is no requirement that PERB determine whether proposed wage scales or contract terms are consistent with any articulated state goal. The Board’s authority is procedural, not substantive.

Under NC Dental, that is not “active supervision.” The Court was explicit: a supervisor must review the substance of anticompetitive decisions, not merely the procedures that produce them, and must exercise power to ensure the conduct serves the state’s own policy rather than private interests. AB 1340 offers none of that.

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