Uber is a smart phone application that pairs private vehicle drivers with passengers. Drivers log on to the application to notify passengers that they are available to drive. Passengers sign on the application to request a ride. Once the driver accepts the request, a picture of the car and the driver appears on the passenger’s phone so the passenger is able to identify the ride. Uber is one of many applications, including Lyft and Sidecar, which pair drivers with passengers. All of these applications have one thing in common; they retain drivers as independent contractors rather than employees.
The classification as either an employee or independent contractor is critical to both parties. By being denied employee classification, drivers are denied protections provided under the California Labor Code, such as minimum wage benefits and overtime pay (Cal. Lab. Code § 1194), meal and rest breaks (Cal. Lab. Code § 226.7), reimbursement for work-related expenses (Cal. Lab. Code § 2802), and workers’ compensation (Cal. Lab. Code § 3700). However the business models of companies such as Uber and Lyft are dependent on driver classification as independent contractors. If drivers were classified as employees it would negatively impact both the cost of service and the profit of the company.
On June 3, 2015, in Berwick v. Uber Technologies, the Labor Commissioner of the State of California determined that Berwick was an employee of Uber rather than an independent contractor; a surprising result considering courts have been reluctant to definitively classify similar drivers as employees in previous cases. In March 2015, in Cotter v. Lyft, the court refused to rule as a matter of law that drivers of Lyft were employees, determining that it was a question of fact for the jury. (Cotter v. Lyft (2015) 60 F.Supp.3d. 1067, 1082).
The California Supreme Court has set out a widely recognized set of rules to be used when a question arises regarding the classification of independent contractor. The principal question is whether the company for whom service is rendered has the right to control the manner and means of accomplishing the desired result. In S.G. Borello & Sons v. Dept. of Industrial Relations (1989) 48 Cal.3d. 341, 350-351, the Court also established the following factors to consider when making the classification determination:
- Whether the person performing services is engaged in a distinct occupation or business;
- The kind of occupation, and whether it is customary in the area for the work to be done under the direction of the principal or by a specialist without supervision;
- The skill required by the particular occupation;
- Whether the alleged employer or workman supplies the instrumentalities, tools, and the place of work;
- The length of time for which the services are to be performed;
- The method of payment, whether by time or by the job;
- Whether the work is part of the regular business of the alleged employer; and
- Whether the parties believe they are creating an employer-employee relationship may have some bearing on the question, but is not determinative.
In making its determination in Berwick, the Labor Commissioner focused, primarily, on whether the work was part of the regular business of the putative employer and the extent of control the putative employer maintained over the operation as a whole.
Uber maintained that they were a neutral technology platform and they exerted very little control over the drivers’ activities. However it is not necessary to maintain complete control in order for an employment relationship to exist, especially where the activity is an integral part of the business and does not require a high degree of skill. The drivers were found to be integral because Uber is in the business of providing transportation services to passengers, which would not be possible without drivers. Further, Uber maintains more control than it let on. The hearing officer held that even if Uber did not control every detail, they were involved in “every aspect’ of the operation in that they vetted drivers by performing background and DMV checks, monitored driver approval ratings by denying access to the application for anyone who fell below 4.6 stars, and even put restrictions on the vehicles that may be used by requiring registration of the vehicle with Uber and restricting access to cars over ten years old.
This is the first decision in California to find employee status for an Uber driver. The ruling by the Labor Commissioner is non-binding, meaning that it is limited to just Berwick. So while it did not create a bright-line rule that California Uber drivers are employees, this decision could open the door to other actions against Uber, and its competitors, to classify their drivers as employees. The ruling highlights the difficulty in making the independent contractor classification determination. Common practice in an industry is not a meaningful defense to the legal analysis and classification of employees. A strong presumption the workers are classified as employees permeates the legal analysis of many California administrative agencies. In these settings, companies are frequently surprised by the outcome of administrative proceedings. Here, Uber has now appealed the decision in an effort to re-establish its analysis and classification. However, if the decision is reaffirmed de novo by the superior court, there will be significant support in favor of Uber and other drivers being classified as employees in California.
In addition to the appeal of the Labor Commissioner’s decision, there is also a class action pending against Uber. The class action originally filed on August 16, 2013, is currently seeking class certification. Class certification is following Plaintiffs’ victory over Uber in March when the U.S. District court denied Uber’s Motion for Summary Judgment. The class action seeks to certify a class of about 160,000 California drivers. On July 8, 2015, Uber’s newly hired counsel Theodore J. Boutros, filed a motion opposing the class certification on the basis that “many, if not most, proposed class members” do not want to be categorized as employees. Boutros further claimed that the benefit of being an Uber driver is the “independence and flexibility” that comes with being an independent contractor. In their press call on July 8th, Uber made clear that they do not wish to reclassify drivers as employees and they are focused on the pending litigation. The hearing to determine class certification is currently set for August, 6. 2015, and will determine how the case proceeds.