In today’s economy, technology and “sharing” based platforms are redefining who is considered a contractor and who is an employee.
Ride sharing businesses have taken hold in cities across the United States. The model is simple, but extremely profitable. Ride sharing services present an app for a customer to find a driver who will take them to their destination for a set price. The most popular ridesharing services are Uber and Lyft. However, is the ride-sharing driver a Contractor or an Employee? Employees are entitled to receive benefits and many other labor protections that are not required for contractors. There is a cost benefit for a company to classify workers as contractors, instead of employees. However, misclassification can be a costly mistake.
In December, an Uber driver, Barbara Ann Berwick, filed suit claiming she was misclassified as a contractor, when she should have been an employee, as such she was not fully paid for her work. Currently it is the policy of ridesharing companies, Uber included, to classify their drivers as contractors who are responsible for their own expenses, gas, maintenance and repair. Uber states that it grants drivers the freedom to choose when, where and how often to work, therefore the drivers are not employees, as intended by law. In response to the recent events, the company issued a statement saying “It’s important to remember the No. 1 reason drivers choose Uber is because they have complete flexibility and control.” Most Uber drivers have other jobs, and use Uber driving to supplement their income. Unlike many taxi or limousine services, Uber does not own or maintain the vehicles, and the company does not directly employ drivers. According to Uber, the company provides a technological service to provide drivers, to those that require rides.
However, through the course of that lawsuit, the California Labor Commission decided that Uber is far more than a logistics software company that matches supply with demand. They held that Barbara Ann Berwick was an employee of Uber, to whom $4,000, representing the costs of fuel and maintenance, was owed. The Labor Commission Decision held that Defendants “are involved in every aspect of the operation.” Uber controls the tools driver use, monitors their approval ratings and terminates their access to the system if their ratings fall below 4.6 stars on a 5 star scale. Uber has provided drivers with phones in order to perform their jobs. The company sets limits on the number of rides a driver may perform in a given time frame. Uber also performs background checks on the driving records of their drivers, and requires them to use a car that is newer than ten years. In their ruling, the California Labor Commission relied on precedents which have held that pizza delivery persons and traditional cab drivers were employees, as well as a federal 2013 case which designated FedEx drivers as employees.
By classifying their drivers as contractors, Uber has shifted the financial burden of repair and maintenance, entirely onto their drivers. While the California Labor Commission’s holding only extends to this situation of Ms. Berwick, if it were to encompass every driver who worked for a ride share company, it could significantly increase company costs, reduce profits, and have the potential to change the entire industry. Uber has stated it intendeds to appeal this decision.
Uber’s employment policies have come under increasing scrutiny. In March, a federal judge approved a group of Uber employees to proceed as a class to challenge their contractor status in court. Throughout these legal developments, it is important for employers of all workers to reconsider their employment policies. Today, even workers who appear to be contractors, such as Uber drivers, may be legally considered employees. Incorrect employee classification can be a costly threat to businesses. If you have any questions about the legal definition and treatment of employees or contractors, you can contact an attorney at Hardin Thompson, P.C.