Avoiding an Uber Mistake: Misclassification of Employees as Independent Contractors
These days, we can be connected with drivers, grocers, home cleaners, dog walkers, etc., with the click of an App. Aside from convenience and the comfort of a background check, consumers are little concerned with the mechanisms behind this business-worker relationship. Businesses, on the other hand, should be on high alert to avoid an uber misclassification (I know, punny).
Most of us have “Ubered” by now – calling on the App to find us a fancy, black sedan or SUV for convenient transportation. With service in over 311 cities and 58 countries, Uber is gaining massive success. However, the company received unwanted attention when, on June 3, 2015, the California Labor Commission held that Barbara Berwick, a former Uber driver, was not an independent contractor with Uber, but rather, was an employee, entitled to all of the benefits associated therewith.
As part of her claim, Ms. Berwick requested lost wages and liquidated (double) damages, as would be permitted to her as a misclassified employee under the Fair Labor Standards Act. The Commission, however, dismissed these claims, ruling that there was insufficient evidence of Ms. Berwick’s hours worked and payment information. As a result, the Commission only awarded Ms. Berwick $4,152.20 for mileage reimbursement and toll charges, plus interest. The amount owed is nominal for Uber, but the implications - quite damaging.
Uber and similar platform-based businesses, such as Instacart, which contracts workers to deliver groceries, the chore service TaskRabbit, have long represented that they do not employ individuals, but rather, operated a neutral technological platform through which, in Uber’s case, drivers are connected to passengers. In disagreeing with Uber, the Commission relied on Yellow Cab Cooperative v. Workers Compensation Appeals Board, in which the California Supreme Court held that “an employee-employer relationship will be found if the [employer] retain[s] pervasive control over the operation as a whole, the workers’ duties are an integral part of the operation, and the nature of the work makes detailed control unnecessary.” Reviewing Uber’s relationship with Ms. Berwick, the Commission found the Uber was “involved in every aspect of the working relationship,” including:
- Requiring drivers to register their cars;
- Conducting background and DMV checks on potential drivers;
- Controlling the fee paid to drivers;
- Providing to drivers an iPhone application necessary to complete the work; and
- Monitoring of driver’s approval ratings and terminating relationship if the rating fell below a certain level.
While the Commission’s decision is only applicable to Ms. Berwick, it has far reaching consequences. First, the decision is a huge blow to the Uber, which is facing a class action lawsuit from drivers claiming that they were misclassified as independent contractors in violation of the FLSA. Although the Commission’s decision is not binding, the analysis will certainly be relied upon by the plaintiff-drivers to buoy their position. Moreover, since Uber is appealing the decision, should the California Superior Court uphold the Commission, then the decision will become precedential in California and authoritative in other states.
More significantly, the Commission’s decision and the potential precedent it sets is a huge blow to other companies mirroring the Uber business model. Not only will reclassifying workers as employees require business to set aside appropriate funds for Social Security and Medicare taxes, health and workers’ compensation insurance, and business expenses, but such businesses are then on the hook for owed minimum wage and overtime compensation, plus, potential liquidated damages, and attorney’s fees under the FLSA. In other words, big money damages.
While we wait for the Uber lawsuit and Commission appeal to give us further clarity, what can your business do to minimize legal expenses and ensure that you are properly classifying employees? Generally, courts look to the following factors to determine whether a worker is truly an independent contractor in business for himself or herself, as opposed to an employee:
- The extent to which the work performed is an integral part of the employer’s business;
- Whether the worker’s managerial skills affect his or her opportunity for profit and loss;
- The relative investments in facilities and equipment by the worker and the employer;
- The worker’s skill and initiative;
- The permanency of the worker’s relationship with the employer; and
- The nature and degree of control by the employer.
To determine where your workers fall in regards to the above test, contact me. The best way to avoid unnecessary damages and legal expenses is to take a proactive approach to worker classification. My practice focuses in part on evaluating employees’ job responsibilities, benefits, etc. to determine whether, under the above referenced factors, the workers are employees or independent contractors. By having counsel assess the above and modifying worker responsibilities, employer control, pay and benefits, a business can have piece of mind that its workers are properly classified and avoid costly, unnecessary litigation.