The Uber Decision

By June 30, 2015

By: Michael T. Landen
Michael Landen_226 greyIn Berwick v. Uber Technologies, Inc., on June 3, 2015, the California Labor Commission issued a ruling classifying an Uber driver as an employee, not an independent contractor. Berwick v. Uber Technologies, Inc., 11-46739 EK.  This recent decision has been the subject of significant discussion in the legal community and it presents an ever-evolving issue of law which affects many employers. The independent contractor versus employee distinction has been discussed and debated by multiple courts for years. Moreover, this issue reaches beyond personal transportation services. For example, in 2014 the Ninth Circuit issued a ruling finding that FedEx had misclassified its ground drivers as independent contractors. Alexander v. FedEx, 765 F.3d 981 (9th Cir. 2014).  As a result of that ruling, FedEx settled with the 2,300 California drivers for $228 million this past week. FedEx’s settlement and the California Labor Commission’s decision in the Uber case are hot topics in the area of overtime compensation, and will likely have far-reaching implications for businesses engaged in transportation services.

The California Labor Commission in Uber listed eleven factors for its analysis to assess whether an individual is an employee or an independent contractor. Common factors courts consider are: whether the work requires a special skill, the degree of control exercised by the defendant over the plaintiffs, and whether the plaintiffs’ duties are an integral part of the business.  See Berwick v. Uber Technologies, Inc., 11-46739 EK; FedEx, 765 F.3d at 989.  The degree of control is often cited as the most persuasive of these factors. However, courts have found that the degree of control is not a demanding standard, as the employer need not retain the right to control every aspect of the individual’s work, but just “all necessary control over the operation as a whole.” Uber, 11-46739 EK (citing S.G. Borello & Sons, Inc. v. Dept. of Industrial Relations, 48 Cal. 3d 341, 356 (1989)). Additionally, the Commission in Uber drew a distinction between workers performing personal services, rather than business services, stating that in the former scenario the burden shifts to the employer to prove independent contractor status, which results in a presumption favoring employee status.
Earlier this year, Uber and Lyft unsuccessfully moved for summary judgment, arguing that their drivers were independent contractors. The Northern District of California denied the motions due to issues of fact and ordered the cases be decided by juries. The Northern District made this ruling despite Uber’s efforts to maintain an independent contractor relationship with its workers. For example, Uber had its workers sign an agreement expressly disclaiming an employment relationship and referred to drivers as its “partners.” O’Connor v. Uber Technologies, Inc., C-13-3826 EMC, at *4 (N.D. Cal. 2015).
The Southern District of Florida also addressed this issue in a collective action suit against a limousine company. Foody et al. v. Carey Intern., Inc., 04-21104-CIV-UNGARO-BENAGES (S.D. Fla. 2004). In Foody, the Florida District Court found that the plaintiffs were employees, citing several factors as favoring employee status, such as the plaintiffs’ limited flexibility due to the requirement of 24/7 availability, the fact that the plaintiffs were an indispensable component of defendant’s business, and the restriction on their ability to work for other limousine companies. Id. at 22-30. The court did acknowledge a few traces of an independent contractor relationship, such as plaintiffs’ ability to refuse certain jobs. Id. However, the court found this insufficient to tip the scales in favor of independent contractor status. Id. at 30.
Although the Uber decision is non-binding, it will still likely have a major impact on transportation companies, like Uber. The Uber, FedEx, and Foody decisions, and others like them, will likely lead to a shift toward hiring drivers as hourly employees, rather than independent contractors. Classifying workers as employees triggers numerous costs, including withholding federal and state income tax, unemployment and workers’ compensation, and health care insurance, for example. Businesses confronting these issues, and those that may soon be dealing with similar issues concerning overtime and employee versus independent contractor status, should contact their employment counsel to ensure they are protected.