Uber has been in the news recently for classifying its drivers as independent contractors rather than employees. Because it presents a unique glimpse into the complexities of IC classification, and the evolving flexible workforce, we’ve been posting regular updates on their challenges.
On September 1, US District Judge Edward Chen approved class-action status for a lawsuit in which three drivers sued Uber for classifying them as independent contractors rather than employees. The outcome of the case could have a huge impact on Uber’s business model and also create a ripple effect throughout the entire on-demand economy, which often depends on classifying flexible workers as independent contractors.
Last week Uber appealed the ruling. Uber’s 22-page request to appeal called Chen’s ruling “manifestly erroneous” and asked the appeals court to reverse the judge’s order. In the petition, Uber attorney Ted Boutrous questioned why the judge would allow a single jury to decide whether thousands of drivers who use Uber in widely different ways should be included in the case when the California Labor Commission reached two different conclusions about two separate drivers.
“The potential ramifications of this closely-watched class-certification order are difficult to overstate,” Boutrous wrote. “In the face of such novel and difficult questions of law, stark differences between putative class members and staggering potential consequences, the district court should not have risked ‘commit [ting] the fate of an entire industry…to a single jury.'”
Shannon Liss-Riordan, the attorney representing the drivers, called Uber’s filing “premature” and “desperate.” She went on to say: “As the court pointed out, Uber thought it could make that decision on a class-wide basis — it decided that all of its drivers are independent contractors. It’s disingenuous for the company now to argue that’s actually an individualized consideration.”
Uber’s position is based on their interpretation of the services they provide to customers. They claim that their smartphone app (which sidesteps taxicabs) just provides a connection between people who want a ride and the drivers who drive their own vehicles. Since its launch six years ago, the company has grown from a San Francisco-based startup into a multinational service in 295 cities and 55 countries.
The legal challenge for Uber is that its decision to classify drivers as independent contractors means the company is not responsible for typical employer costs and obligations, including Social Security, health insurance, paid sick days and overtime. Uber drivers must also supply and maintain their own cars, so they are not reimbursed for gas, repairs and other related expenses.
If the class action is allowed to continue Uber may have to deal with paying damages and back taxes for tens of thousands of Uber drivers in California rather than just the three drivers who first brought the complaint forward. In addition they’ll have to restructure their business to accommodate employee drivers.
At TalentWave we continue to monitor these developments as they will influence the broader regulatory and civil litigation environments which impact our enterprise clients who engage flexible workers. In the short-term it is likely that 1099 economy companies like Uber will have to evaluate and strongly consider more traditional employment models for their services workers (for example, making their drivers part-time employees). Longer-term we can expect to see more regulatory and legislative activity that will attempt to better define and govern these flexible workers with the goal of collecting proper employment taxes and providing worker protections similar to what traditional employees receive.