Uber and the Employment Status Shift, Will the Gig Economy Survive?

By: David Riahi

With the prevalence of technology, desire of autonomy, and difficulty of securing a reliable job, the so-called “gig economy” is a quickly growing segment of our modern market. [1]In fact, according to Intuit, by the year 2020 the gig economy is expected to make up 43% of our workforce. [2]The gig economy is made up of “freelancers of all stripes”, from plumbers and electricians to the newer and more popular online platforms such as Uber and Lyft. [3]The spur of this economy allows freelancers to earn extra cash on the side due to the increased desire of businesses to hire independent contractors, rather than employees, to perform short-term duties.

So, who cares? Why would anyone care if a business is hiring a worker as an “independent contractor” and not an “employee”? Well, whichever title the freelancer’s employment falls under bears with it certain benefits. Most importantly, an “employee” is under the control of the company and is entitled to certain benefits, such as health insurance, disability, unemployment and workplace injury compensation.[4]On the other hand, independent contractors receive no benefits, work independently, set their own hours, and pay for whatever costs arise in completing the job. [5]The common-law definition of “Independent Contractor” and “employee”, echoes the fact that independent contractors retain freedom in their actions. The test holds that if an employer “can control what will be and how it will be done” then the worker is an employee.[6]Thus, if the employer has the right to control the details of how the job is to be performed, then the worker is an employee. Given the vast growth of the gig economy, this title of employment has become a major concern for both workers, and employers. [7]

Uber, the popular transportation service, allows users to “hail” private drivers from the Uber App at any time to be taken to their desired location. Uber began in 2009 and is now estimated to have over 3 million drivers. In fact, Uber is estimated to have their drivers complete a total of 15 million trips per day.[8]

What you’re likely thinking is accurate, that’s a lotof work. And given the freelance nature of Uber, which allows drivers to chose when they’d like to work, where they’d like to work, and for how long they’d like to work, Uber has limited their drivers’ benefits by classifying them as independent contractors. However, in California Uber has faced class-action lawsuits from their drivers claiming that they were “misclassified as independent contractors.”[9]Along with the benefits of being classified as an employee, plaintiffs contend that they should be reimbursed for expenses that Uber should pay, such as gas and vehicle maintenance.[10]Inarguably, reimbursement expenses for Uber alone would be a catastrophic economic hit given the large number of “independent contractors” they employ.

“On April 30, 2018, the California Supreme Court Issued a landmark ruling that changed the test for independent contractor status in California.”[11]Under this test, Uber has the burden to prove that the drivers are independent contractors. Uber must prove that “drivers do not perform services within Uber’s usual course of business. In other words, if Under cannot prove that it is not a transportation company, then its drivers would be employees under California Law.”[12]Further, Uber must prove that the drivers are free from control and direction over their work, and that the drivers are engaged in an independently established trade.[13]However, Uber is “vigorously defending itself in this lawsuit.”[14]

Of the many legal issues that can threaten a company, employment status of workers is usually not the first issue to come to mind. Is Uber right? Are the drivers independent contractors because they own their own cars and set their own hours? Or are the drivers employees because Uber has control over the drivers since the drivers work for set fares determined by Uber, have to abide by Uber’s code of performance, and must not fall below the rating system that Uber created? In other words, are the drivers entitled to benefits, overtime, and collective bargaining?[15]The answer to this question will have will have a tremendous effect on the gig economy, as employers who are forced to reclassify “independent contractors” as “employees” will have to engage in budget cuts to compensate for the added benefits they owe their employees. Freelance gigs from transportation, homecare, skills, and goods could all be affected. “If Uber is a transportation company that employs drivers, is Airbnb a hotel chain? Is TaskRabbit (an app matching freelance labor with local demand) a cleaning and repair company? Is Instacart (a grocery delivery platform) a shipping company employing errand runners?”[16]And just as importantly, can these companies survive a shift in employment status?

 

 

[1]Larry Alton, Why The Gig Economy Is The Best and Worst Development For Workers Under 30, Forbes (Jan. 24, 2018) https://www.forbes.com/sites/larryalton/2018/01/24/why-the-gig-economy-is-the-best-and-worst-development-for-workers-under-30/#2200e9056d76

[2]Patrick Gillespie, Intuit: Gig economy is 34% of US workforce, CNN Money (May 24, 2017) https://money.cnn.com/2017/05/24/news/economy/gig-economy-intuit/index.html

[3]Id.

[4]Being an Independent Contractor vs. Employee, FindLaw https://employment.findlaw.com/hiring-process/being-an-independent-contractor-vs-employee.html

[5]Id.

[6]Employee (Common-Law Employee), IRS https://www.irs.gov/businesses/small-businesses-self-employed/employee-common-law-employee

[7]Company Info, Uber Newsroom https://www.uber.com/newsroom/company-info/

[8]Id.

[9]Mike Isaac & Natasha Singer, California Says Uber Driver Is Employee, Not a Contractor, The New York Times (June 17, 2015) https://www.nytimes.com/2015/06/18/business/uber-contests-california-labor-ruling-that-says-drivers-should-be-employees.html

[10]Uber Drivers, Litchten & Liss-Riordan, P.C. https://www.uberlawsuit.com/

[11]Id.

[12]Id.

[13]Dynamex Operations West, Inc. v. The Superior Court of Los Angeles County, 4 Cal.5th903, 955-56 (2018).

[14]Supranote 10.

[15]Omri Ben-Shahar, Are Uber Drivers Employees? The Answer Will Shape The Sharing Economy, Forbes (Nov. 15, 2017) https://www.forbes.com/sites/omribenshahar/2017/11/15/are-uber-drivers-employees-the-answer-will-shape-the-sharing-economy/#3a7c4fd65e55

[16]Id.

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