The “Uber-Interesting” Debate: Employee or Independent Contractor?

What is the difference between an employee and an independent contractor?

This question was at the heart of a recently settled pair of California and Massachusetts class action lawsuits against Uber by its drivers.

Uber is not your mama’s taxi service. The young $62.5 billion San Francisco-based private tech company has revolutionized the ride-hailing industry worldwide with its tap your phone and get a ride app. Each month, over 450,000 drivers in the U.S. use the app.

Uber classifies its drivers as independent contractors instead of employees, primarily to keep costs low. This enables Uber to avoid paying minimum wage and the employer’s portion of Social Security and also to get around other worker protections for designated employees. Not surprisingly, disgruntled workers seeking employee benefits may contest their status as independent contractors.

One determining factor in whether workers should be classified as employees or independent contractors involves the level of control a company has over the worker. Generally, more control favors an employee designation, whereas less control favors an independent contractor classification.Transparency matters as well, with greater levels favoring freelancer classification and lesser levels favoring employee classification.

In the Uber cases, drivers use their own vehicles, have flexibility to work as often as they want, and can even cancel a previously accepted trip — all factors that suggest independent contractor status. On the other hand, Uber drivers cannot negotiate price and they may be deactivated by Uber based on poor approval ratings from riders, excessive cancellations, and/or for regularly declining to accept dispatches — factors similar to the hiring and firing process of traditional employees. This begs the question: How free are these freelancers if the company can arbitrarily deactivate or penalize them for not working on demand?

Before the settlement, Uber drivers were largely in the dark about the ratings system and how approval rates were calculated; they also did not have a right to appeal a deactivation. Greater transparency and a possible appeals process will now be explored. But the heart of the settlement — and the shift that most impacted Uber’s ability to maintain the independent contractor classification — is Uber’s agreement to change the protocol surrounding the deactivation of drivers due to their cancellation and acceptance rates.

The subtle differences in how a company structures its relationship with its workers may have a major impact on whether workers can be classified as independent contractors — a designation which, if properly supported, could bring substantial financial benefits to the company.

If you need an Employment and Labor Law attorney or need help with an Employment Litigation matter, Carico Johnson Toomey LLP is conveniently located in the South Bay area of California and offers years of experience and expertise.Call (310) 545-0010.

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