By Charles O. Thompson and Stan Hill
As we have noted in our ongoing Uber Watch post series, Uber’s revolutionary sharing economy business model has been challenged in several lawsuits disputing whether Uber drivers are properly classified as independent contractors, rather than employees. These cases may also fundamentally affect other sharing economy businesses that provide software or networks linking workers to customers seeking rides or other services.
On June 3, 2015, a hearing officer of the California Labor Commission ruled that former Uber driver Barbara Berwick was an employee, not an independent contractor, and was therefore entitled to expense reimbursements under California law. On June 16, 2015, Uber appealed the ruling to Superior Court of California, San Francisco County. If upheld, the Labor Commission ruling could erode Uber’s classification of drivers as independent contractors exempt from state and federal minimum wage, overtime, unemployment insurance, health insurance, and expense reimbursement laws. The Labor Commission ruling is noteworthy for the aspects of Uber’s business model found to be dispositive.
The hearing officer substantially relied on California precedent holding that taxi cab drivers are employees of a taxi cab company. Unlike a taxi company, however, Uber did not provide vehicles to drivers or dictate which fares to take or when to work. Still, Uber was deemed to have exercised “all necessary control over the operation as a whole” to be classified as an employer because its software matched drivers to fares, it required drivers to maintain a minimum customer satisfaction rating, and it limited drivers to using cars less than 10 years old. Under such reasoning, any company that provides a website or software matching a service provider to customers and that takes steps to ensure that the service is provided in a safe or acceptable manner might be an employer. For example, Etsy or eBay might be an employer of an artisan who sells her handiwork on those websites.
The hearing officer also reasoned that the former Uber driver’s services are integral to Uber’s business because Uber is “in the business of provided transportation services to customers” and “without drivers . . . , [Uber’s] business would not exist.” The ruling rejected the testimony of Uber management that Uber is not in the transportation business, but rather, a software company in the business of connecting drivers to passengers. If the Labor Commission’s “but for” test is dispositive to the employer-independent contractor dichotomy, the sharing economy business model may be in jeopardy.
The hearing officer then noted, contrary to earlier findings, that Uber is involved “in every aspect of the operation” because Uber requires drivers to provide bank accounts and social security numbers (obviously, so they can receive fares), and because Uber requires drivers to pass a background and DMV check (obviously, for passenger safety). Uber, however, was also found to exercise control in setting fares, regulating the types of cars used by drivers, and deciding whether to charge cancellation fees to no-show passengers.
We will continue to monitor Uber’s appeal of the hearing officer’s ruling and other cases challenging the independent contractor classification at the heart of the sharing economy business model.