While Uber is fighting hard on all fronts to prove its drivers are correctly characterized as independent contractors, there are notable examples of other successful app-driven on-demand start-ups that have either recently converted contractors to employee status or characterized all workers as employees from the get-go.
The Uber class-action suit is important from both a legal and a business perspective because many companies are currently using independent contractors to augment their workforce to give them a competitive edge. “It permits the company to avoid the payment of payroll taxes, benefits, unemployment benefits and workers’ compensation insurance. It dramatically reduces the overhead associated with the workforce,” says James R. Evans, Jr. a partner in the Los Angeles firm Alston & Bird, LLP.
Uber drivers seeking a ruling that they are employees and not independent contractors recently had a class action against the company certified by a federal court judge in California. If a jury agrees with them at trial, the decision could have profound implications for any U.S. company currently using outsourced labor.
In late July, Curtis Lee, the CEO and co-founder of the on-demand valet parking service Luxe operating in nine U.S. cities announced in a blog on the company’s website that “to further deliver a consistently great experience for our customers and provide more opportunities for our valets, today we are announcing that we will begin transitioning our valet workforce from 1099 contractors to W-2 employees immediately.”
As part of the change, he said Luxe valets will continue to have flexible working hours, but the company will now pay for work-related expenses such as phone usage and jackets. Valets will also receive health benefits (if full-time) and other government mandated coverage like Social Security, workers compensation and overtime.
Marcella Sappone, is the co-founder and CEO of Hello Alfred which currently has over 100 employees (35% full-time) operating in six U.S. cities. For a $99/month subscription, Hello Alfred offers clients a service layer that sits on top of the usual housekeeping services (i.e., groceries, laundry, accepting packages, etc.), coordinating them through a weekly visit from each customer’s own “trusted Alfred.” Each Alfred employee has their clients’ house keys and clients come home to a closet full of clean clothes, a stocked fridge, and sorted mail.
Because her company is in the business of forming “trusted relationships,” Sappone says from the beginning, the business plan factored in hiring all staff as W-2 employees. They start at $18/hour with an option to work two, four or five days a week. Over several months they can move up in their career based on performance, and manage other Alfreds or a neighborhood.
“It costs us 20-30% extra in fixed costs to hire employees instead of independent contractors, but we think if we give our Alfred client manager the tools to do her job well, our end users will be happy,” Sappone says. “”So since we started, we’ve made the economics of a W-2 workforce work for us.”
Shannon Liss-Riordan, the lawyer representing Uber drivers in their class-action lawsuit, thinks companies like LUXE and Hello Alfred are onto something. “Uber is a $50 billion company. There is nothing stopping them from re-configuring their revenue to cover worker expenses and give them other protections,” she says. “At least then it will be more transparent to drivers what they will have in their pockets at the end of the day.”
In addition to asking that they be characterized as employees, the Uber drivers are requesting reimbursement of expenses they would have been entitled to during their period of employment and tips, which the company says are included in the fare but have never been passed on to the drivers.
Uber Technologies Inc. operates a service that connects riders with drivers through the use of a smart phone app. Both rider and driver can see each other's picture and profile on the app which requires both parties to accept one another before any rides are arranged. Then the app uses a GPS to guide the driver to the rider, and on to the rider's destination.
In June of this year, the California Labor Commission agreed that Barbara Berwick – a San Francisco Uber driver from July to September 2014 – was an employee, and awarded her more than $4,100 to cover the costs of vehicle mileage and tolls during that period. However, Liss-Riordan says, “a class action is the most efficient way to get relief for drivers in similar situations because this was a ‘one-off’ determination of an administrative tribunal that does not bind other tribunals or courts.”
The current case is a national class action under California law but the judge limited the class to California drivers who contracted with Uber directly and in their own names between 2009 and 2014. “That’s because Uber contracts with their drivers after that date typically included an arbitration clause and class action participation waivers which may or may not be enforceable,” says Liss-Riordan, a partner in the Boston law firm Lichten & Liss-Riordan P.C.
If the California class action is successful, she plans to appeal the original limited certification order and apply to expand the class nationwide. She is also encouraging drivers who may not be part of the class to contact her firm so if necessary, she can commence individual actions on their behalf. Currently several thousand drivers from around the country have contacted the law firm, but the class could potentially include 160,000 or more people nationally.
Whether or not the Uber drivers get the verdict they are looking for depends on how a jury applies a multi-faceted test under California law, with the most important factor being the level of control the alleged employer has over its workers.
Liss-Riordan notes that in particular, the right to terminate at will is a strong indicator of control consistent with an employment relationship. “It’s right in the contract that the company can de-activate drivers for all sorts of reasons. A common one is that the drivers don’t have a high enough customer rating.”
Another factor the courts consider is whether the work is being done in the usual course of the company’s business providing a service the company makes available to its customers. “In the certification hearing Uber tried to argue they are a technology company but the court rejected that and said what they are selling to the public is a car service,” she says.
Evans, of Alston & Bird, has tried similar cases involving taxi companies. He’s not surprised that the class action was certified because he says the Northern District of California tends to be “a pro-certification” venue. He also agrees that this is the kind of case where drivers typically have common contracts so it is most efficient to try the claims collectively.
But when it comes to how a jury will characterize the drivers, Evans says his money is on Uber. “I think these drivers have a tremendous amount of independence in deciding when to work or not, whether or not they will accept a ride, when to take their lunch break, or if they want to take a nap in the middle of the day,” he says. “That doesn’t look like an employment relationship to me because the driver is getting to decide how, when and where he works.”
Sheryl Smolkin is a lawyer and freelance writer based in Toronto.
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