Contractor or Employee? Uber Drivers and the Future of Ridesharing
Uber is facing a class-action lawsuit brought by drivers who claim that they have been misclassified as independent contractors rather than as employees. The distinction between contractor and employee is significant. Drivers classified as employees would need to be paid in accordance with state wage and hour laws, reimbursed for expenses incurred while driving (such as gas), reimbursed for tips, and compensated for overtime. Independent contractors, on the other hand, are entitled to no such benefits. Through this case, Uber drivers are seeking employee benefits moving forward and damages for the benefits that they should have received had they been classified as employees.
In an earlier legal battle, the California Labor Commissioner’s Office (CLO) ruled that an Uber driver should be classified as an employee and that the driver bringing the action, Barbara Ann Berwick, was entitled to reimbursement of $4,000 for the expenses she incurred while driving for Uber. While Uber has held that it merely maintains a neutral technology platform in which drivers and passengers can find each other, the CLO ruling found that Uber “is involved in every aspect of the operation” and that Berwick was subsequently entitled to reimbursement as required for employees of a given company.
While the ruling has significant implications for Berwick’s identification as an employee rather than a contractor, the CLO ruling was limited in scope and only binds Berwick.
Current Class Action
Even though Uber’s lost suit with Berwick is limited in scope, the legal finding may set a precedent for other drivers seeking employee status. Uber has attempted to limit its legal liability by requiring all drivers to sign an arbitration clause, which precludes drivers from bringing actions in courts of law and prevents drivers from bringing any collective action against Uber. The clause reads:
Except as it otherwise provides, this Arbitration Provision is intended to apply to the resolution of disputes that otherwise would be resolved in a court of law or before a forum other than arbitration. This Arbitration Provision requires all such disputes to be resolved only by an arbitrator through final and binding arbitration on an individual basis only and not by way of court or jury trial, or by way of class, collective, or representative action.”
Judge Edward M. Chen of the Northern District of California District Court certified a class of drivers on December 9, 2015. Chen held found that these arbitration agreements were “unenforceable as a matter of public policy,” and that drivers who did not opt out of Uber’s arbitration clauses could still be part of class certification. The result of this certification is that the pending case may now include all drivers who have contracted with Uber in California since 2009. Though the case is limited to California drivers, the firm representing the case, Lichten & Liss Riordan, plans to appeal a separate order granting Uber’s motion to limit the scope from nationwide drivers to California drivers.
Contractor v. Employee
The current case could have vast implications for the ride-sharing economy. Uber’s reliance on the contractor classification of its drivers enables the company to refrain from paying drivers workers’ compensation (i.e. insurance for employees injured on the job), overtime, driving-related expenses, and health insurance. If the class action succeeds, the company may be forced to provide additional benefits for drivers, including the reimbursement of repairs resulting from driving-related damages.
Plaintiffs argue that Uber utilizes them as employees because Uber controls so many aspects of the drivers’ work—its transportation services, qualifying and selecting drivers, setting fares, regulating and monitoring driver performance, and terminating drivers. As such, Uber is a “transportation company” that manages its drivers’ experiences and organizes the financial gains from each ride.
In contrast, Uber holds itself to be a “technology company” that presents a “lead generation platform” that can be used to “connect businesses that provide transportation.” Uber holds that its drivers are independent contractors because the company exercises minimal control over how its drivers actually provide transportation services to Uber customers. The company points out that drivers set their own hours and work schedules and provide their own vehicles. As a result, Uber provides little supervision. Furthermore, Uber holds that a change in status could reduce the flexibility of drivers—the key feature of the ride-sharing economy, which has enable apps like Uber to succeed and gain wide popularity amongst both drivers and customers.
The U.S. District court denied Uber’s motion for summary judgment, holding that the question whether Uber’s drivers are employees or independent contractors “is an issue to be decided by a jury.” The trial date is set for June 20, 2016.