Navigating the Murky Waters of Worker Classification
San Francisco’s Uber Technologies, Inc., is no stranger to lawsuits. The company’s mobile app matches customers throughout the globe with Uber drivers who use their own cars to provide transportation. Aside from over a hundred legal disputes with governments and taxi companies worldwide, on September 1, 2015, U.S. District Judge Edward Chen granted class action status to a group of Uber drivers who claim that they have been misclassified as independent contractors. Uber’s request to appeal the class action certification order was recently denied and the trial is scheduled for June 2016.
The Uber drivers are seeking reimbursement for expenses such as gas and vehicle maintenance. They also claim that tips collected by the company were not passed on to them. Uber claims that its drivers have complete flexibility and control over their work, and are therefore properly classified as independent contractors.
Common law employee
According to the IRS guidelines, there are a number of factors that must be analyzed to determine if a worker is an employee. To make its assessment, a company should look at three types of control:
- Behavioral: Does the employer control what work will be done and how that work will be done? Does the employer have the right to fire the worker, and does the worker have the right to quit, or is there a contract that states otherwise?
- Financial: Does the employer control how the worker is being paid? Are the worker’s expenses reimbursed? Is the employer providing the worker with tools and/or supplies? Is the employer controlling any other business aspects of the work?
- Type of Relationship: Is there a written contract that identifies the classification of the worker? Is the worker entitled to company benefits, such as vacation pay, sick days, pension and insurance? Is the relationship continuing or limited in time?
This past summer, the U.S. Department of Labor (DOL) ignited the fury of business leaders by issuing a 15-page memorandum suggesting that more businesses should be designating their workers as employees rather than independent contractors. Businesses claim that the DOL is relying on a model that is no longer relevant in the current working environment.
The DOL guidance memo embraces a much broader definition of ’employee’ based primarily on what it views as the “ultimate question” of a worker’s economic dependence on the employer, not control. This has enraged many companies, particularly those developing under new business models, and provides little assistance in navigating the murky waters of worker classification in a constantly changing business landscape.
Note that both the IRS and the DOL guidance indicate that any determination of employee status must take into account all the factors and look at the entire relationship to determine whether a worker is an employee or an independent contractor. In our practice, we have found that often the big picture is overlooked.
Independent Contractor
If a worker is paid by the job or by commission, provides services to the general public or to a number of customers at a time, works on their own premises and has a signed contract that indicates they cannot be terminated at will, that worker is likely to be classified as an independent contractor. Under the IRS guidelines, the key is whether the worker has the right to control how his or her services are performed.
What does this mean for Uber?
The Uber drivers are claiming that Uber controls many aspects of their work; the company sets their fares, requires them to accept or decline a fare within 15 seconds, and the company determines when and why they can be terminated. Uber asserts that the vast majority of its workers have expressed a preference for the independence and flexibility of independent contractor status. Note that although state agency rulings do not carry the weight of a court decision, nine state agencies thus far have held that Uber drivers are independent contractors, not employees.
The Uber case is likely to have far-reaching implications for many on-demand companies . We at Moskowitz, LLP will be following the case closely and are looking forward to seeing how the court makes its determination.
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