The Unresolved Question of Employee Status of Uber Drivers

Damian O'Sullivan

Uber Technologies Inc. ("Uber" or the "Company") has recently been the subject of numerous sizeable lawsuits in connection with a variety of legal issues, prominently among which is the contentious question of whether or not Uber drivers are employees or independent contractors. Uber, along with many other app-based businesses, has been on the receiving end of massive valuations as a result of the fact that its flexible business model hinges on linking customers to services that are, in turn, provided by independent contractors. As a result, Uber receives consistent income from users of the app, but without the obligation to pay employees in accordance with wage and hour laws, or to provide full-time insurance benefits to drivers, and with the added benefit of having drivers who cannot organize to form a labor union or collectively bargain on the terms and conditions of their employment, which can be very costly for employers. These cost-saving features of Uber's business model have contributed to the Company's profitability, but have also become costly as a result of paying to defend litigation on the question of whether its drivers are misclassified as independent contractors.

Worker advocates and many independent contractors in the ever-increasing "on-demand" or "gig" sector of the economy argue that Uber drivers are, in fact, employees who are being deprived of the statutory protections for employees, but not independent contractors. These supporters assert that Uber is a transportation service, which makes the drivers Uber employees during the time they offer their services. Additionally, they suggest that Uber dictates the prices charged to passengers, the conditions of the car, the promptness of drivers, and the manner in which drivers are expected to interact with passengers. Uber even monitors driver performance and can terminate a driver's relationship with Uber based on unsatisfactory performance, which, taken in conjunction with the other aspects of the drivers' relationships with Uber, indicate the existence of an employment relationship.

Uber contends that it simply takes a portion of the drivers' fees in exchange for matching customers with drivers, and has no employer relationship with drivers. Uber further argues that, since it does not require drivers to work a certain number of hours or certain times of the day, does not provide drivers with any of the tools required for the work (such as cars or gas) and does not limit the drivers' ability to work other jobs, Uber drivers are rightly classified as independent contractors.

In late April, Uber settled a lawsuit for (up to) $100 million that delved into the issue of whether drivers were employees or independent contractors in the cases O'Connor et al. v. Uber Technologies Inc. et al. [1] and Hakan Yucesoy v. Uber Technologies Inc., et al. [2] Eighty-four million dollars of the settlement is to be directly issued to the class of California and Massachusetts drivers, while the remaining $16 million will be paid out to the class if the Company goes public and meets certain performance targets.

In addition to the settlement fund, Uber has agreed to provide drivers with more information about their ratings and deactivation criteria, as well as to establish an association through which drivers may voice concerns about their employment.

This settlement was praised by Uber in large part because it resolved the claims of this class of workers without impacting the classification of Uber drivers as independent contractors. However, many Uber drivers voiced their dissatisfaction with the settlement due, in part, to the fact that more than half of the class would only receive $24 or less per class member from this settlement and the proposed resolution leaves open the question of employee status, which most likely will continue to prompt lawsuits covering the drivers from the 48 states not encompassed by this settlement.

Two prominent labor market specialists proposed an overhaul of the employee versus independent contractor dichotomy in response to the increasing commonality of people working in the "gig economy." When the Fair Labor Standards Act was passed in 1938, the lawmakers could not possibly have foreseen the gray area that exists today between employee and independent contractor as a result of app-based companies. Former Deputy Secretary of Labor, Seth Harris, and Princeton Professor, Alan Krueger, argue that this void can be filled with a third "hybrid" classification that affords some of the protections provided to employees, such as the right to unionize and to receive health benefits from their hybrid employer, but not protection the under minimum wage and overtime statutes. Opponents to this alternative policy suggest that only a very limited number of people could accurately be classified as both employees and independent contractors, and that it would be very difficult to adjudicate this proposal in practice.

In the meantime, the employee versus independent contractor battle is ongoing, and Seth Harris acknowledges that such change is not likely to occur quickly. However, he suggests that as these lawsuits become more and more frequent, with resolutions that are costly and unpredictable, results may become egregiously burdensome, which would incentivize both sides of the issue to rally around some sort of a legislative change.

Uber's legal proceedings remain worth watching, and such large-scale and widely publicized litigation may ultimately become the driving force behind eventual Congressional action to clarify the legal questions surrounding employee status in our evolving economy.

The legal team at SFMS has significant experience litigating class action matters. If you have any questions regarding this subject or this posting, please contact Nick Lussier (nlussier@sfmslaw.com) or Chiharu Sekino (csekino@sfmslaw.com). We can also be reached toll-free at (866) 540-5505.

Shepherd Finkelman Miller & Shah, LLP is a law firm with offices in California, Connecticut, Florida, New Jersey, New York and Pennsylvania. SFMS is an active member of Integrated Advisory Group (www.iaginternational.org), which provides us with the ability to provide our clients with access to excellent legal and accounting resources throughout the globe. For more information about our firm, please visit us at www.sfmslaw.com.

Sources:

Benn, Kerry. " Uber Settles 2 Class Actions With Drivers for Up to $100M." Law360. Last modified on April 21, 2016.

Bultman, Matthew. " More Uber Drivers Object to $100M Settlement." Law360. Last modified on May 6, 2016.

Gurrieri, Vin. " Uber Cases Could Spur New Employee Classification." Law360. Last modified on May 6, 2016.

[1] Case number 13-cv-03826 (N.D. Cal. 2016)

[1] Case number 15-cv-00262 (N.D. Cal. 2016)