To Employ(ee) or Not to Employ(ee): Are Uber Drivers Employees or Independent Contractors?

Author: Gabriel Fletcher, Associate Member, University of Cincinnati Law Review

Uber drivers in the state of California are challenging Uber Technologies, Inc. (Uber) in a class action suit, arguing that they should be classified as employees instead of independent contractors.[1] The classification of Uber’s drivers will dictate the drivers’ rights and eligibility for employment related benefits. The drivers will succeed in the suit because Uber exercises the same level of control over its drivers that an employer would exhibit and drivers are essential to Uber’s business.

What is Uber?

Uber is a company that manages and promotes a mobile phone application (also called an “app”) that goes by the same name.[2] Uber is a service that states it connects “riders to drivers through….apps,” making cities more accessible.[3]  The general concept is simple: the Uber app works to connect passengers with a driver.[4] A passenger logs into the Uber app and hails a driver.[5] The driver then accepts the rider and travels to the rider’s location to pick them up.[6] The rider does not pay the driver in cash; instead the monetary transactions are done via credit or debit card through the app—with no tip required.[7]

Uber uses an algorithm that determines ride rates based on the relative supply and demand of riders to drivers at any given moment.[8] Based on this fee structure, an Uber driver’s compensation is sporadic and difficult to rely upon in any consistent fashion.[9] For some drivers the rates are so low and sporadic that they do not even meet minimum wage.[10]

Uber says that it does not provide a taxi service; instead it provides only an app service that connects drivers to riders. But Uber’s interpretation of the employment relationship between the company and the drivers is not the correct legal classification.

Employee vs. Independent Contractor and Why It Matters

Uber’s business model relies on drivers being classified as independent contractors instead of employees.[11] Classifying the drivers as independent contractors comes with a specific set of advantages for the ride-sharing company. As independent contractors, Uber drivers are not eligible for any protections required by employment law statutes because they are not employees.[12] As such, “independent contractors are not covered by the minimum wage, workers’ compensation, unemployment compensation, occupational safety and health laws, collective bargaining laws, Social Security, disability, [or] anti-discrimination laws,” among other protections.[13] Accordingly, classifying its drivers as independent contractors saves Uber a great deal of money.

As independent contractors, Uber’s drivers assume a level of responsibility that employees would not be subject to. First, Uber drivers are responsible for their own gas.[14] Second, Uber drivers have to supply and upkeep their own vehicles.[15] Third, Uber says it provides end-to-end insurance coverage, however, a driver is not covered under the insurance plan if traveling to a passenger area without first accepting a trip.[16]

The Economic Realities Test

The California court will use the economic realities test to determine the nature of the relationship between the worker and the principal. The test involves a non-exhaustive list of factors that includes: (1) the degree of control exerted by the alleged employer over the worker; (2) the worker’s opportunity for profit or loss; (3) the worker’s investment in the business; (4) the permanence of the working relationship; (5) the degree of skill required to perform the work; and (6) the extent to which work is an integral part of the alleged employer’s business.[17] The California court will utilize the economic realities test to determine which category Uber drivers match more closely.

California Labor Commission and Kansas Supreme Court Rule: Employee

In Berwick v. Uber Technologies, the California Labor Commission found that an Uber driver, Barbara Berwick, was not an independent contractor but an employee.[18] The commission focused on several factors to make their determination. First, the commission zeroed in on the degree of control that Uber exercises over its drivers.[19] Uber argued that it exercises little control over drivers, but the court disagreed.[20] The commission reasoned that the “minimal degree of control” exercised by the employer over the details of work was not an accurate way of examining the relationship because the work was not skill intensive and it was an essential part of the employer’s business.[21] As such, the employer exercised all necessary control over the operation as a whole.[22]

The commission held that Uber exercises control over many aspects of the operation.[23] First, Uber vets prospective drivers, who must provide banking and social security information as well as pass Uber’s background and DMV checks.[24] Second, Uber exercises control over the tools that drivers use.[25] Uber drivers register their vehicles with Uber and the vehicles must be less than 10 years old.[26] Finally, Uber, and not the drivers, has the ability to negotiate trip pricing and cancellation fees with passengers.[27]

The commission addressed the issue of personal vehicle use by pointing to the fact that pizza delivery individuals, under the traditional standard, were held to be employees despite the fact that they were required to use their own cars, provide their own gas, and secure their own insurance.[28] The commission rejected the argument that Uber is only a neutral platform that connects drivers to passengers, stating that “[w]ithout drivers such as plaintiff, [Uber’s] business would not exist.”[29]

Similar to the California Labor Commission, the Kansas Supreme Court addressed the employee or independent contractor issue in Craig v. FedEx Ground Package Sys., Inc.[30]  In Craig, FedEx delivery drivers brought suit against FedEx, alleging that the package delivery service wrongly classified the drivers as independent contractors instead of employees.[31] The court determined that FedEx exercised control over the drivers in a manner that was consistent with the employer-employee relationship.[32]

The court deemed FedEx drivers to be an integral part of the FedEx business, which tipped the scales in favor of an employee label.[33] FedEx argued that the drivers were distinct from the business, but the court stated that businesses do not ordinarily trust their core functions to independent contractors, over which the business has minimal control.[34] The court found that FedEx maintained performance oversight that could lead to termination, which implies an employer-employee relationship.[35] Also, the court noted that a driver being able to end the employment relationship unilaterally at any point in time was contrary to an independent contractor; ordinarily contractors are “expected to complete all work contemplated by the contract.”[36] The court pointed to the fact that FedEx drivers serve the company and do not offer their services to the general public.[37] The court stated that a worker’s ability to generate more income based on effort expended does not necessarily negate the existence of an employment relationship.[38]

Similar to Berwick, FedEx drivers’ compensation rates are not negotiable by the individual driver, which led the court to find an employee relationship.[39] Finally, the court stated that FedEx’s requirement that the worker personally perform the job suggested that FedEx’s interest in the methods used to accomplish the work, and not just the results obtained, was indicative of an employer-employee relationship.[40]

Uber’s Practices and the Rulings

Berwick and Craig are not precedential to the upcoming class action. But the decisions should provide some framework for how the California court will proceed. Uber, like FedEx, exercises quite a bit of control over its drivers while professing to be hands off. Assuming the California court agrees with the findings in Berwick and incorporates the determinations from the Craig ruling, the court will hold that Uber’s drivers are employees and not independent contractors.

First, Uber’s performance review system for drivers is indicative of an employer-employee relationship because falling below a 4.6 rating will result in a driver losing access to Uber’s app, which is similar to a termination. Second, Uber drivers serve Uber. The drivers do not attempt to serve the general public by offering their driving services outside of using Uber’s name and platform.[41] Third, while Uber may argue that drivers control their own income, which evidences an independent contractor, the ability to generate more income based on expending more effort does not necessarily mean that the drivers are independent contractors.[42] Fourth, Uber drivers, like the FedEx drivers in Craig, are not able to negotiate rates with any of the other parties involved, which is indicative of an employer-employee relationship.[43] Finally, Uber drivers are required to perform the duties themselves, because Uber drivers are not allowed to let another person use their access credentials on the Uber app. In other words, Uber is not just interested in the results, but also the process, and that is indicative of an employer-employee relationship.[44]

Conclusion

The California court will likely rule that Uber drivers are employees instead of independent contractors, based on employment relationship criteria. A loss in this suit in California will not impact Uber in other markets right away, but may lead to similar findings in other jurisdictions. If so, Uber may need to adjust its employment practices, possibly requiring Uber to be more selective of drivers in an attempt to cut down its workforce. Uber may also have to start monitoring the work hours of drivers and ensure that minimum wage requirements are met. Moreover, there will be consequences under the Affordable Care Act regarding Uber’s responsibility to adhere to certain insurance coverage mandates.

[1] O’Connor v. Uber Technologies, Inc., 82 F. Supp. 3d 1133 (N.D. Cal. 2015).

[2] Lauren Goode, Worth it? An App to Get a Cab, WSJ.com (June. 17, 2011), http://blogs.wsj.com/digits/2011/06/17/worth-it-an-app-to-get-a-cab/.

[3] Uber.com (Sept. 30, 2015), https://www.uber.com/about.

[4] Matthew Hughes, What is Uber And Why Is It Threatening Traditional Taxi Services?, Makeuseof.com (Jul. 4, 2014), http://www.makeuseof.com/tag/uber-threatening-traditional-taxi-services/.

[5] Id.

[6] Id.

[7] Id.

[8] Nicholas Diakopoulos, How Uber surge pricing really works, The Washington Post (Apr. 17, 2015), http://www.washingtonpost.com/news/wonkblog/wp/2015/04/17/how-uber-surge-pricing-really-works/.

[9] Id.

[10] Maya Kosoff, UBER DRIVERS SPEAK OUT: We’re Making A Lot Less Money Than Uber Is Telling People, Business Insider (Oct. 29, 2014), http://www.businessinsider.com/uber-drivers-say-theyre-making-less-than-minimum-wage-2014-10.

[11] Roberto Baldwin, California Uber drivers can join in class-action lawsuit, Engadget (Sept. 1, 2015), http://www.engadget.com/2015/09/01/uber-class-action/.

[12] Contingent Workers, U.S. Dep’t of Labor (Oct. 10, 2015), http://www.dol.gov/_sec/media/reports/dunlop/section5.htm.

[13] Id.

[14] Id.

[15] Id.

[16] Nairi, Insurance for uberX with Ridesharing, Uber.com (Feb. 10, 2014), http://newsroom.uber.com/2014/02/insurance-for-uberx-with-ridesharing/.

[17] Craig v. FedEx Ground Package Sys., Inc., 335 P.3d 66, 75 (2014).

[18] Berwick v. Uber Technologies, Inc., 2015 Cal. Wrk. Comp. LEXIS 118, *19 (W.C.A.B. 2015).

[19] Id.

[20] Id at 10-12(quoting Yellow Cap Cooperative v. Workers Comp. App. Board, 226 Cal.App.3d 1288 (1991)).

[21] Id. at 12.

[22] Id. at 13.

[23] Id. at 14-16.

[24] Id. at 14.

[25] Id.

[26] Id.

[27] Id. at 15.

[28] Id at 13 (quoting Toyota Motor Saves v. Superior Court, 220 Cal.App.3d 864, 876 (1990)).

[29] Id. at 14.

[30] 335 P.3d at 71.

[31] See id. at 66.

[32] Id. at 84-85.

[33] Id. at 85-86.

[34] Id. at 86.

[35] Id. at 84.

[36] Id. at 92.

[37] Id. at 91.

[38] Id. at 90; see also S.G. Borello & Sons, Inc. v. Dep’t of Indus. Relations, 769 P.2d 399 (1989)(because sharefarmers are able to generate more personal revenue by picking more and better quality crop is not indicative of ability to incur a loss or profit).

[39] Id. at 89.

[40] Id. at 86.

[41] Cf. Craig, (court determining that FedEx drivers not offering to regularly serve the general public is evidence of an employer-employee relationship); see also Berwick, 2015 Cal. Wrk. Comp. LEXIS 118*13-14 (citing S.G. Borello & Sons, Inc. v. Dept. of Industrial Relations, 769 P.2d 399 (1989).(“The modern tendency is to find employment when the work being done is an integral part of the regular business of the employer, and when the worker, relative to the employer, does not furnish an independent business or professional service.)

[42] Cf. Craig, (court determining that worker’s pay may vary based on effort, but that fact does not negate the existence of an employment relationship and FedEx maintained control over driver route assignments).

[43] Cf. Craig, (court determining drivers not having the ability to negotiate compensation rates may be evidence of an employer-employee relationship).

[44] Cf. Craig, (court finding that requiring a worker to personally perform a job suggests that the principal holds an interest in the method used to accomplish the work, not just the results, and that is evidence of an employer-employee relationship).

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