Recently, I went out for brunch in New York City for my sister’s birthday. As we came out of Penn Station, we were met with a downfall of rain. My sister’s best friend quickly opened her Uber app and requested three SUVs to pick up our group and take us to the restaurant. I had yet to indulge in the Uber phenomenon, but I was intrigued.
After we loaded into our driver’s black Lexus SUV, we started talking to the driver. The driver informed us that this Lexus was his own vehicle. He also received prompts from Uber through his own cell phone. The driver also told us it is his decision to work when he wants to work.
This encounter made me think whether or not these drivers were classified as independent contractors or employees. The driver’s day-to-day activities were dictated by Uber’s app, but there were indications that he operated on his own. As we have explored in our topical newsletter (see here and here), proper classification is a hot priority of both federal and state government agencies, as well as the subject of many class-action lawsuits against employers.
Not surprisingly, lawsuits have been filed in California against Uber, and its competitor, Lyft. The suits claim drivers for the two companies are improperly classified as independent contractors, and should be considered employees of their respective companies. The lead attorney representing the plaintiffs, Shannon Liss-Riordan, has also helped employees win judgments against FedEx for improper classification of its delivery drivers. The arguments against classifying Uber drivers as independent contractors will be similar to the arguments she made in the FedEx litigation: the company demonstrates significant control over the drivers’ work (allegedly drivers must abide by the company’s “Rules of the Road,” which includes fist bumping clients and a clutter free back seat), the company sets compensation terms, and the company has the ability to “terminate” the drivers as though they were employees (Uber unsuccessfully attempted to exclude e-mails between Uber employees that discussed banning horrible drivers).
However, Uber and Lyft will likely be able to make some strong arguments of their own. As revealed by my story, the drivers own their own “tools” (their cars and cell phones) and set their own hours. Also, many drivers have a relationship with multiple companies; in fact, drivers often work for both Uber and Lyft. The structure is also fluid: drivers can refuse to pick up certain customers and can pick and choose their own routes.
These lawsuits will have major consequences for businesses and startups that operate primarily through apps. Specifically, companies like Uber and Lyft, have business models that rely on users acting as, what the companies believe, are independent contractors (after screening for proper driving documents, Uber clears users and provides an exclusive app they can use to match with users who need rides).
If the courts find an employee relationship exists with these drivers, these companies will be subject to multiple laws and regulations that will greatly increase costs, including minimum wage, overtime, tipping rules, employee taxes and withholdings, etc. Further, if categorized as employees, drivers can organize to collectively bargain with the companies.
It will be interesting to see how the California courts will decide this issue. Both sides have decent arguments, but precedent tends to lean in favor of finding that drivers for both companies are employees. Although the courts have limited the scope of these lawsuits to drivers in California, the cases will certainly have repercussions for the rest of the country.