“Uber v. Drivers”: The Battle for Employee Classification

The peer-to-peer ridesharing industry has been booming since Uber first went live in San Francisco in 2010. Presently, Uber has spread to more than 700 cities worldwide,[i] and is estimated to have more than two million active drivers.[ii] The ease and popularity of Uber’s services have inspired a remarkable amount of competition: in the United States, companies like Lyft, Wingz, Summon, and Via have entered the peer-to-peer ridesharing market; internationally, Didi Chuxing, Haxi, Grab, and Taxify have been competing with Uber.

From the start, Uber has been fighting an uphill battle. Traditional cab drivers have staged numerous protests around the world, arguing that Uber was engaging in unfair competition by bypassing local licensing and safety laws, and offering cheaper services to customers by providing fewer employee benefits to its drivers compared to traditional cab drivers.[iii] More recently, in January 2017, Uber faced public backlash for turning off surge pricing during the New York taxi strike in response to Trump’s executive order banning refugees from entering the United States.[iv]

But not all of the problems Uber must deal with are coming from external sources. Indeed, one of the newest issues facing Uber comes from its own drivers, many of whom are upset that the company classifies them as independent contractors instead of employees.[v] Uber drivers want the employee classification for a number of reasons. Such a status would entitle them to numerous benefits, ranging from pension, unemployment compensation, vacation time, minimum wage, health insurance, and overtime pay.[vi] In addition, the employee status would improve their collective bargaining power,[vii] and shift liability for any negligent acts occurring during and within the scope of their employment to Uber.[viii]

Users of Uber’s ridesharing app may not think that drivers have any basis in claiming an employee status: Uber drivers use their own cars rather than vehicles supplied by the company; they choose their own hours and how long they work each day; they can quit whenever they want to; and many hold other jobs simultaneously. Furthermore, Uber’s contracts refer to their drivers as “partners” rather than employees, and call the company a “platform” rather than a transportation company.[ix]

Under common law, however, it is not the company’s contracts or the public’s perceptions that determine whether a worker is classified as an employee or an independent contractor. Instead, the common law control test would find that Uber drivers are “employees” if Uber has the power and right to control what the drivers do, and how they do their job.[x]

In addition to the common law control test, courts often consider a variety of factors when determining whether a worker has earned an “employee” status. While the precise test and factors vary depending on the jurisdiction, in California, where Uber originated, courts look at the following eight factors:

  • whether the worker performing services is engaged in a distinct occupation or business;
  • whether the work is usually done under the direction of the employer without supervision;
  • the skill required in the particular occupation;
  • whether the employer or the worker supplies the instrumentalities, tools, and the place of work for the worker;
  • the length of time for which the services are to be performed;
  • the method of payment;
  • whether or not the work is a part of the regular business of the employer; and
  • whether or not the parties believe they are creating an employer-employee relationship.[xi]

At first glance, Uber’s drivers appear to be independent contractors. They are afforded incredible flexibility and autonomy in terms of when they work, how long to work, and when they can take breaks. They drive their own cars and pay for their own gas. They can keep additional jobs, or even work for competing ridesharing companies simultaneously. Furthermore, the drivers are paid by the customers, not by Uber. Indeed, Uber’s only role is to collect the payments from the customers and distribute the payments to the drivers after taking its cut.

A closer examination, however, reveals that Uber does have some meaningful control over several aspects of their drivers’ jobs. First, although drivers are allowed to use their own cars, Uber has strict requirements on the types of cars that can be used in conjunction with its service.[xii] Second, while the drivers are paid by customers, the fares are set by Uber. Additionally, drivers are required to maintain an average rating above a certain minimum, to accept rides that are assigned to them, and to drive their customers according to the route displayed on the app. As of February 2018, Uber drivers in the United States are also required to take a 6-hour break for every 12 hours of driving, so as to prevent fatigue and drowsiness.[xiii] Finally, Uber advises drivers about how best to interact with their customers and provides suggestive “tips” for drivers who are caught deviating from its guidelines.[xiv] Drivers who repeatedly violate Uber’s rules have their employment terminated.[xv]

So far, courts are divided on the employee or independent contractor issue. In 2015, the Northern District of California held that Uber drivers are, in fact, employees under California law,[xvi] and in 2017, an administrative law judge from the Department of Labor came to the same conclusion.[xvii] On the other hand, in Florida, a state judge held that Uber drivers are not employees eligible for unemployment benefits.[xviii]

The implications of the worker classification issue are far-reaching. For Uber, the conclusion that its drivers are employees would mean that Uber would have to start withholding federal taxes, and would be personally liable for failing to remit the money to the government.[xix] Uber would also have to provide employee benefits according to the prescriptions of various federal and state labor laws. As an employer, Uber would also be liable for their drivers’ negligent acts under vicarious liability. All of these changes will be costly for Uber: it was estimated in 2015 that it would cost Uber $209 million to reclassify 45,000 drivers in California alone.[xx]

Uber drivers themselves may have reason to resist the shift from independent contractors to employees. While they may enjoy greater benefits as employees, they would lose a significant amount of the flexibility and autonomy that classification as an independent contractor grants. As well, if Uber decides that the drivers are sufficiently compensated through benefits, then the company may assign drivers a smaller share of customer payments. Furthermore, because Uber will be liable for the drivers’ negligence, the company might impose stricter hiring guidelines and a more rigorous screening procedure, effectively increasing the barrier to entry for new drivers.

For consumers, this shift could mean higher fares, resulting either from a decreased pool of active drivers, or from a new need to offset the costs of company-provided employee benefits. On the bright side, Uber’s stricter hiring and driver guidelines may result in superior service, and increased safety.

Ultimately, the lawsuits involving Uber and its drivers are sure to affect other ridesharing companies. If more and more jurisdictions conclude that Uber drivers are employees, and not independent contractors, it may become an industry default to classify ridesharing drivers as employees. And if newer or smaller companies cannot maintain or attain profitability after this shift, we might expect that a handful of big companies will come to dominate the market.

The ride-share economy was revolutionary in that it eliminated many barriers to entry, increased competition, reduced prices for consumers, and allocated assets more efficiently to those in need.[xxi] While the growing number of driver lawsuits against Uber and similar ridesharing companies risk reducing these public benefits, the lawsuits also reflect the struggle of the working class in fighting for what they believe are welfare protections guaranteed to them by law.

[i] Uber, https://www.uber.com/cities/ (last visited Feb. 23, 2018).

[ii] Garrett Camp, Uber’s Path Forward, Medium (June 20, 2017), https://medium.com/@gc/ubers-path-forward-b59ec9bd4ef6.

[iii] Bogota Taxi Drivers Block Streets in Uber Protest, BBC News (Oct. 24, 2017), http://www.bbc.com/news/world-latin-america-41731109.

[iv] Matthew Lynley, Uber Apologizes for “Confusion” at JFK during Immigration Protest, TechCrunch (Jan. 29, 2017), https://techcrunch.com/2017/01/29/uber-apologizes-for-confusion-at-jfk-during-immigration-protest/.

[v] Kim Hjelmgaard, British Panel Rules Uber Drivers Are Employees, Not Contractors, USA Today (Nov. 10, 2017, 9:49 AM), https://www.usatoday.com/story/news/world/2017/11/10/british-panels-rules-uber-drivers-employees-not-contractors/851388001/.

[vi] For example, the Fair Labor Standards Act of 1938 requires employers to pay employees at least the federal minimum wage and overtime pay at 1.5 times the regular rate. 29 U.S.C. §§ 206, 207. The shared responsibility portion of the Affordable Care Act requires businesses with 50 or more employees to offer health insurance to their employees or pay a penalty. 26 U.S.C. § 4980H.

[vii] The National Labor Relations Act of 1935 gives employees the right to form unions and bargain collectively with their employers. 29 U.S.C. § 157.

[viii] Restatement (Third) of Agency § 2.04 (Am. Law Inst. 2006) (“An employer is subject to liability for torts committed by employees while acting within the scope of their employment.”).

[ix] Omri Ben-Shahar, Are Uber Drivers Employees? The Answer Will Shape the Sharing Economy, Forbes (Nov. 15, 2017, 11:24 AM), https://www.forbes.com/sites/omribenshahar/2017/11/15/are-uber-drivers-employees-the-answer-will-shape-the-sharing-economy/#43f7d6aa5e55.

[x] S.G. Borello & Sons, Inc. v. Dep’t of Indus. Relations, 48 Cal. 3d 341, 350 (Cal. 1989) (“[T]he principal test of an employment relationship is whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired.”) (internal quotations omitted).

[xi] Id. at 350–51.

[xii] Uber, https://help.uber.com/h/2ddf30ca-64bd-4143-9ef2-e3bc6b929948 (last visited Feb. 23, 2018).

[xiii] Darrell Etherington, Uber to Require a 6-Hour Break for Every 12 Hours of Driving in the U.S., TechCrunch (Feb. 12, 2018), https://techcrunch.com/2018/02/12/uber-to-require-a-6-hour-break-for-every-12-hours-of-driving-in-the-u-s/.

[xiv] Ben-Shahar, supra note ix.

[xv] Id.

[xvi] O’Connor v. Uber Techs., 82 F. Supp. 3d 1133, 1135 (N.D. Cal. 2015).

[xvii] See Dana Rubinstein, State Labor Judge Finds Uber an ‘Employer’, Politico (June 13, 2017, 5:18 PM), https://www.politico.com/states/new-york/albany/story/2017/06/13/state-labor-court-finds-uber-an-employer-112733.

[xviii] See generally McGillis v. Dep’t of Econ. Opportunity, 210 So. 3d 220 (Fla. Dist. Ct. App. 2017).

[xix] IRS, https://www.irs.gov/compliance/criminal-investigation/employer-and-employee-responsibilities-employment-tax-enforcement (last visited Feb. 23, 2018).

[xx] Megan Rose Dickey, Judge Rules Grubhub Properly Classified Delivery Driver as Independent Contractor, TechCrunch (Feb. 8, 2018), https://techcrunch.com/2018/02/08/grubhub-v-lawson-ruling/.

[xxi] Ben-Shahar, supra note ix.