On September 1, 2015, United States District Court Judge Edward Chen certified a class of Uber drivers who claim that the ridesharing and technology company misclassified them as independent contractors and deprived them of tips that Uber advertised but never paid. Throughout this and other challenges to its business model, Uber has maintained that it properly classifies its drivers as independent contractors, pointing primarily to the fact that drivers can work whenever and wherever they want, for however long they want. In this case, Uber argued that due to its “unique relationship” with each individual driver, the Court would be unable to make class-wide determinations as to whether each driver is properly classified.
Ruling for the plaintiffs, Judge Chen concluded that UberX, UberBlack, and UberSUV drivers who signed up directly with Uber under their individual names from August 16, 2009, to the present, satisfied the requirements of Federal Rule of Civil Procedure 23(b)(3) to proceed as a class on the claims that they were misclassified as independent contractors and deprived of tips. In his order, Judge Chen drove straight through Uber’s “unique relationship” argument: “On the one hand, Uber argues that it has properly classified every single driver as an independent contractor; on the other, Uber argues that individual issues with respect to each driver’s unique relationship with Uber so predominate that this Court (unlike, apparently, Uber itself) cannot make a classwide determination of its drivers’ proper job classification.”
Highlighting the “inherent tension” of Uber’s position, the finding that dominated the decision is that Uber retained the right to control the drivers in every essential function of the business—even when it did not actually exercise that control. From its exclusive right to control driver training, the fares charged to passengers, and the “star” ranking system, to Uber’s uniform policies against drivers accepting tips and permitting drivers to work as much or as little as they wanted, the Court concluded that Uber’s right to control these elements of its relationship with drivers could be answered the same way for every driver.
While the decision is a challenge to Uber, all was far from lost for the company. Uber prevailed in convincing Judge Chen that the drivers’ claims for expense reimbursement, e.g., gas, car maintenance, water, were too individualized for class treatment. The Court also excluded from the class thousands of drivers who work for intermediate companies (not directly for Uber), and those who signed and did not opt out of a 2014 arbitration clause. The Court did, however, give the drivers 35 days to amend their pleading to make a showing to warrant class certification of additional claims or subclasses.
The Road Ahead
- In the context of this case, the decision means that the stakes for Uber to prevail on the merits increases significantly. Under Uber’s current business model, it avoids paying employment taxes, expensive driver benefits, reimbursing driver expenses, and being obligated to follow most of California’s employment laws. Uber’s $50 Billion valuation does not seem to be affected by one ruling on the merits but a case can be made that such an outcome could make operating the ridesharing company more expensive and significantly less profitable. On the other hand, Uber is one of the most successful disruptive technologies of the new millennia.
- The Court’s Order is the latest in a series of decisions attempting to determine worker status in today’s On-Demand Economy. In June, a California Public Utilities Commission hearing officer ruled that Uber driver Barbara Ann Berwick was an employee, which obligated the company reimburse her $4,152 in expenses relating to her driving. And last week, the National Labor Relations Board (NLRB), in an unprecedented decision, found that companies who use temporary workers from staffing agencies may be considered joint employers for purposes of collective bargaining (read here for Polsinelli’s take on the ruling). Like in the On-Demand Economy cases, the NLRB held that the power of an employer to control its workforce, rather than the power actually exercised, is the correct analysis for assessing the employer/employee relationship. These, and other related cases, are charting an unpredictable, and oftentimes incompatible, course for businesses to navigate their relationships with workers in the new On-Demand Economy.
- The uncertainty of the current state of the law with regard to workers in the On-Demand Economy leads to what we consider the most pressing question: What will the state and federal legislatures do? While courts and quasi-judicial bodies interpret the current laws, the real responsibility for moving ahead in the On-Demand Economy lies with state and federal government. The economy has evolved beyond the parameters of a two classification worker model of (a) employees or (b) independent contractors. As individuals continue to sign up to drive for Uber and Lyft, deliver food for Eat24 or Caviar, and act as personal shoppers for Instacart, companies need clear guidance and predictable rules and regulations to follow to grow these in-demand businesses.
The case is O’Connor, et al. v. Uber Technologies, Inc., No. C-13-3826-EMC, and the class certification order is available here.