Early Court Decision Mentioning “Sharing Economy” Offers Lessons for Platforms, Hints from Judiciary

Perhaps the biggest legal issue facing what I’ll refer to here as ride-sharing companies is whether their drivers should be classified and treated as employees or independent contractors. When an employer/employee relationship exists, the employer may be responsible for paying a minimum wage and overtime, providing benefits, making reimbursements, passing along tips, and complying with various state and federal labor laws. In short, it can be much more expensive for a business to employ someone than to retain him or her as an independent contractor.

In one of the first labor lawsuits filed against Uber, District Judge Edward M. Chen of the United States District Court for the Northern District of California ruled in O’Connor v. Uber Technologies, Inc. (No. C-13-3826) (Mar. 11, 2015) that the company was not entitled to summary judgment on the question of whether some of its UberBlack and uberX drivers are independent contractors. Instead, after noting Uber’s revenues are dependent upon its drivers transporting passengers, the Court concluded that the plaintiffs are Uber’s presumptive employees because they perform services for the benefit of Uber. Remaining mixed questions of law and fact that would definitively resolve whether plaintiffs are Uber’s employees or independent contractors were left for a jury to consider.

There is plenty of case law in California addressing the common law factors to be weighed in considering the employee/independent contractor question, with the putative employer’s right to control work details at the top of the list (e.g., the right to terminate an individual at will).  As the opinion explained, Uber asserts significant control over how its drivers do their jobs, a factor that alone probably made summary judgment in its favor on this issue impossible.  But consider these three additional takeaways:

First, it is evident that some of Uber’s own materials figured into the Court’s adverse ruling against it. The decision cites to Uber’s driver handbook, marketing materials, tagline (i.e. “Everyone’s Private Driver”), driver contract, emails to drivers, scripts, internal documents and emails, utilization of rider ratings and feedback, training videos, and a CEO blog post to demonstrate either a contradiction with Uber’s summary judgment arguments or to show that a genuine issue of material of fact exists rendering summary judgment in Uber’s favor inappropriate.  What may be practical if not beneficial from a business and/or marketing standpoint can be lethal from a legal perspective.

Second, while not a major point, it’s worth highlighting what might be obvious to everyone after the fact – an agreement between two parties regarding the nature of their relationship (i.e. contractual provision specifying parties have independent contractor, not employer/employee, relationship) does not make it so. In other words, Uber and its drivers can agree to characterize their relationship however they like, but a court is likely to examine the realities of the relationship, and not just a label, before coming to any conclusions.

Lastly, I note Judge Chen concluded his opinion with the following statement, seemingly asserting that his hands are tied here by the “traditional multifactor test” and that judicial or legislative intervention might be appropriate in light of the new economic model:

The application of the traditional test of employment – a test which evolved under an economic model very different from the new “sharing economy” – to Uber’s business model creates significant challenges. Arguably, many of the factors in that test appear outmoded in this context. Other factors, which might arguably be reflective of the current economic realities (such as the proportion of revenues generated and shared by the respective parties, their relative bargaining power, and the range of alternatives available to each), are not expressly encompassed by the Borello [common law] test. It may be that the legislature or appellate courts may eventually refine or revise that test in the context of the new economy. It is conceivable that the legislature would enact rules particular to the new so-called “sharing economy.” Until then, this Court is tasked with applying the traditional multifactor test of Borello and its progeny to the facts at hand. For the reasons stated above, apart from the preliminary finding that Uber drivers are presumptive employees, the Borello test does not yield an unambiguous result. The matter cannot on this record be decided as a matter of law. Uber’s motion for summary judgment is therefore denied.

In other words the Court, as it sees it, has applied pertinent substantive and procedural law to the arguments and facts before it here, but new legal standards may be called for that could conceivably lead to a different result.

The case remains pending, Judge Chen having certified a class of California drivers last month.  Stay tuned.

Posted in Class Action, Labor Law, Litigation, Ride Sharing
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  1. […] action as of late has involved this company/segment of the Sharing Economy).  Last year Judge Chen denied Uber’s motion for summary judgment in a case filed by current and former drivers claiming they’d been misclassified by Uber as […]

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