By: Chelsea L. Zwart
May 10, 2016
Rideshare providers, such as the increasingly popular Uber and Lyft services, have been embroiled in employee misclassification lawsuits over the past few years, questioning whether their drivers are properly classified as employees or independent contractors.
It is not always clear when an individual is an employee or independent contractor in California. Rather, a variety of factors are analyzed in determining the appropriate classification, including: whether the individual (1) has the right to control how he/she performs the employment contract, (2) is customarily engaged in an independently established business, and (3) has control over the time and place the work is performed, supplies the tools used in the work, and performs work that requires a particular skill not ordinarily used in the employer’s scope of work. O’Connor v. Uber Technologies, Inc. (2015) 82 F.Supp.3d 1133, 1138-39.
Misclassification as an independent contractor can result in the employer being liable for back pay for taxes, overtime, and employee benefits. This can quickly add up to enormous amounts that the employer may not have the funds to pay. Thus, classification of individuals as independent contractors can be risky.
On April 21, 2016, the parties in two closely-watched misclassification suits against Uber in California, and Massachusetts requested court approval of a $100 million settlement in favor of 385,000 Uber drivers. The cases alleged that as a result of the drivers’ misclassification, they had been denied reimbursement of their business expenses and that Uber had withheld gratuity owed to them. While the settlement compensates the drivers for their alleged damages, Uber has not agreed to re-classify them as employees.
Uber argued that it is solely a technology platform operating in the “on-demand” economy, and that its business is limited to satisfying the demand for rideshares through its app. Uber asserts that the drivers who actually provide the transportation services are properly classified as independent contractors, as there is a division of labor in the scheme – Uber’s app merely connects the consumer to the driver who then independently operates to provide the consumer transportation. Uber further supports that its drivers are properly classified as independent contracts by stressing that the drivers themselves decide when to work, their interactions with riders are only lightly monitored and guided by Uber, and they use their own personal vehicles. In other words, Uber claims it has very little, if any, control over the drivers.
The Uber settlement does not answer the question of whether Uber’s classification of its drivers as independent contractors is legally correct. In fact, as of May 2, 2016, less than two weeks after the announcement of the settlement, two new class-action lawsuits have been filed in Florida and Illinois making similar misclassification allegations.
As “on-demand” technology platforms continue to develop and consumers increasingly rely on them to provide transportation, food delivery, cleaning services, accommodations, and the like, misclassification of employees as independent contractors in reliance on Uber’s current business model could lead to disputes that bankrupt smaller companies. A variety of results could ensue – service providers may be misclassified as employees, the emergence of new “on-demand” platforms may slow, or there may be pressure to change the law. Regardless, it is clear that misclassification will continue to be a hotly contested topic until there is a clearer rule as to when service providers are employees and when they are independent contractors.