One of my earliest cases involved a client who ran a livery service—with a fleet of luxury cars to drive passengers all over town. But neither his cars nor his drivers were properly licensed, and his vehicles were impounded and the drivers were arrested every time they hit the streets—such was the power of the medallioned taxi companies that controlled the streets of San Francisco. The police department made arrests, and the district attorney prosecuted with a fervor, pointing to the dangers to passengers of unregulated chauffeurs.
That’s why I was so skeptical when the Uber model of transportation burst onto the San Francisco scene five years ago. Millions of investor capital dollars were raised in 2010, and the company touted up to a $40 billion value in 2014. But from a regulatory and employment perspective, it still strikes me as a model doomed to fail.
Some of Uber’s problems go beyond employment law. Governments, including Canada, France, Germany, Belgium, and Australia, have acted to block Uber’s activities. The San Francisco and Los Angeles district attorneys have filed a consumer protection suit against the company, while Nevada and Virginia are among the states that shut down the company’s operation. Numerous taxi commissions and municipalities also have actions pending against the company. Individual riders from Washington, D.C., to Chicago to San Francisco have charged Uber drivers with rapes and assault. Those are aside from the employment issues.
Drivers not employees
Uber doesn’t consider its drivers to be employees but rather independent contractors. Some legal factors bearing on that designation are in Uber’s favor: Drivers supply their own vehicles, they decide when they’re going to work, and their contract describes them as independent contractors.
However, other tests suggest the drivers are employees. Drivers who have sued Uber in a nationwide class action pending in San Francisco allege that Uber imposes on them “a litany of detailed requirements” on which they are graded, including timeliness, the cleanliness of their cars, and the quality and substance of passenger communications. A heavy degree of control over how you do your job is a sign of an employee. Lyft drivers have filed a similar class action before another San Francisco federal judge.
Perhaps most important, a person who performs the inherent core function of a business—and without which a business can’t exist—is ordinarily an employee. Uber’s basic function is to drive people around, suggesting the drivers have employee status. As the judge in the Uber case recently wrote, “It’s obvious drivers perform a service for Uber because Uber simply would not be a viable business entity without its drivers.” The Lyft Court similarly noted that drivers are “”central not tangential to Lyft’s business.” That centrality of function will be hard for these companies to overcome.
Knowing that independent contractor arrangements are being closely scrutinized by both state and federal regulators, Uber-esque companies are also trying to avoid employment status by labeling workers as “licensees.” The theory is that on-demand part-time drivers (or shoppers, or gardeners, or any other casual worker) pay a high license fee for the “app” through which they are called to work and aren’t paid for time worked. That might be fine, as long as the licensor providing the app exercises no control over how the licensee performs the job. But once there is any effort to impose quality control or response time requirements or other steps to ensure performance standards, it’s hard to get away from the realm of employment. FedEx learned this recently when a court held that their drivers—who drive similar trucks with identical logos, wear identical uniforms, check in at uniform benchmarks, use identical machines, forms and carts—are employees, rather than independent contractors; how could FedEx have ever imagined otherwise?
New economy wars
This unevenly regulated new economy is fighting its wars outside the ordinary judicial and regulatory process as well. Uber has effectively used its political clout in San Francisco, Sacramento, and Portland, among other places, collecting tens of thousands of customer signatures to block regulations that could put it out of business. On the other hand, cab drivers in major cities all over the country have engaged in strikes and protests against Uber and other unlicensed driving companies. Meanwhile, Uber is widely advertising bonuses to new drivers and extra cash to people who jump ship from another passenger carrier.
These moves carry their own backlash. After former Lyft CEO Travis VanderZanden joined Uber as vice president of international growth, Lyft sued him for taking confidential information. He now has countersued Lyft for invasion of privacy.
Employee friendly juries will make the call
None of the political maneuvering of the companies which claimed independent contractor drivers will be of solace when the issue lands in court. Uber and Lyft recently filed motions in their separate federal court actions, asking the trial judges to rule that their drivers are independent contractors; this week, the judges refused, finding that—despite all of the independent contracting glosses which were grafted onto the working relationship—the facts can cut both ways; the juries will have to sort out the conflicting factual assertions and decide on employee status.
For all of the reasons discussed above, the juries will have plenty of facts upon which to base a finding of employment; history suggests that is what Northern California juries will do, with a massive price tag to Uber and Lyft. When all of the dust settles in all of these cases, look for many more people to be deemed employees. In California in particular, many people have tried to weaken Sacramento’s pro-employee rules; none have succeeded. The same result is likely under the rules, regulations, and enforcement guidelines of the Obama administration’s Department of Labor.
Despite it all, I must admit to having an Uber app on my phone. My clients and friends expect it, and in the new economy, you can’t find a cab when you need one.