California Labor Commission Declares Uber Driver An Employee, Rather Than A Contractor

For the last few months, we’ve been discussing a few different legal disputes over the nature of drivers for services like Lyft and Uber, and whether or not they should be classified as “employees” or “contractors” (or W-2’s or 1099s — based on what kind of tax forms they get). Florida’s Department of Economic Opportunity has said such drivers are employees and a judge in California appears to be leaning that way as well. However, leapfrogging that process, California’s Labor Commission has now declared an Uber driver an employee, rather than a contractor.

You can read the full ruling to see the reasoning. The actual dispute isn’t all that interesting — involving whether or not Uber should be paying a woman directly or a corporate entity she set up. But the key part is the analysis of “employee” v. “contractor.” And under the Labor Commission’s analysis, it very, very, very broadly defines these relationships. Basically, it lists out the usual factors about how much control the parties have over the job, who supplies the tools, the kind of occupation, the degree of permanence and all that… and then just says “yup, employee.” Here’s are the key parts, plus some analysis…

Defendants argued that they exercised very little control over Plaintiff’s activities. However, the Borello court found that it was not necessary that a principal exercise complete control over a worker’s activities in order for that worker to be an employee. “The minimal degree of control that the employer exercised over the details of the world was not considered dispositive because the work did not require a high degree of skill and it was an integral part of the employer’s business. The employer was thus determined to be exercising all necessary control over the operation as a whole.” (Borello, supra, 48 Cal.3d at pp. 355-360.)

That seems backwards. Basically the commission is saying “sure you own your own car, but that’s not enough.” But it’s comparing it to a case involving an actual taxi company where the drivers owned their own cars — but that still involved much more control by the taxi company over the drivers and what they did as compared to Uber, where you just have an app and can turn it on and off at will.

By obtaining the clients in need of the service and providing the workers to conduct it, Defendants retained all necessary control over the operation as a whole. The party seeking to avoid liability has the burden of proving that persons whose services he has retained are independent contractors rather than employees. In other words, there is a presumption of employment. (Labor Code 3357; Borello, supra, at pp. 349, 354.)

But under that theory anyone selling goods on eBay or Etsy should be considered employees as well. And that’s crazy. It shouldn’t be a presumption of employment just because someone is using your platform.

Ownership of the vehicle used to perform the work may be a much less important factor in industries other than transportation. Even under the traditional, pre-Borello common law standard, a person making pizza deliveries was held to be an employee of: the pizzeria, notwithstanding the fact that the delivery person was required to provide his own car and pay for gasoline and insurance. (Toyota Motor Sales 0. Superior Court (1990) 220 Cal.App.3d 864, 876.)

Again, this isn’t saying anything other than “well, we don’t really care who owns the car” even though the rules state that who provides the equipment is a key part of determining the status of the relationship.

“The modern tendency is to find employment when the work being done is an integral part of the regular business of the employer, and when the worker, relative to the employer, does not furnish an independent business or professional service.” (Borello, supra, at p. 357.) Plaintiff’s work was integral to Defendants’ business. Defendants are in business to provide transportation services to passengers. Plaintiff did the actual transporting of those passengers. Without drivers such as Plaintiff, Defendants’ business would not exist.

Again, that kind of analysis would wipe out eBay and Etsy. Just because someone is using your platform, it doesn’t make them an employee. And Uber is not in the business of providing transportation. It provides a service to connect drivers to riders. That’s a key distinction — one the Labor Commission basically dismisses:

Defendants hold themselves out as nothing more than a neutral technological platform, designed simply to enable drivers and passengers to transact the business oft transportation. The reality, however, is that Defendants are involved in every aspect of the operation. Defendants vet prospective drivers, who must provide to Defendants their personal banking and residence information, as well as their Social Security Number. Drivers cannot use Defendants’ application unless they pass Defendants’ background and DMV checks.

This seems ridiculous. By this argument, Uber would be better off if it did not vet the backgrounds of its drivers? How does that make sense? Furthermore, if you were hiring a contractor for something like, say, fixing your roof, wouldn’t you “vet” their background, check their contractor’s license and the like? How does that make them any more of an employee?

Defendants control the tools the drivers use; for example, drivers must register their cars with Defendants, and none of their cars can be more than ten years old Defendants refer to “industry standards” with respect to drivers’ cars, however, it is unclear to what industry, other than the “taxi” industry, Defendants are referring. Defendants monitor the Transportation Drivers’ approval ratings and terminate their access to the application if the rating falls below a specific level (4.6 stars).

That’s an odd definition of “control.” Yes, they have standards, but that’s not “control.” Again, going with the roofer example, I might want to make sure that the roofer is using modern tools that will guarantee a better job, and I might make sure that they’re up on the various building “industry standards” to make sure they’ll do a good job. And I might fire them if they’re doing a crappy job on the roof. Still doesn’t make them an “employee.”

While Defendants permit their drivers to hire people, no one other than Defendants’ approved and registered drivers are allowed to use Defendants’ intellectual property. Drivers do not pay Defendants to use their intellectual property.

Again, so what? No one other than approved contractors are allowed up on my roof and they don’t pay a fee to access my roof.

The passengers pay Defendants a set price for the trip, and Defendants, in turn, pay their drivers a non-negotiable service fee. If a passenger cancels a trip request after the driver has accepted it, and the driver has appeared at the pick-up location, the driver is not guaranteed a cancellation fee. Defendants alone have the discretion to negotiate this fed with the passenger. Defendants discourage drivers from accepting tips because it would be counterproductive to Defendants’ advertising and marketing strategy.

To be honest, this is the only point in the entire argument that even has some resonance, in that Uber does control the pricing. But that, alone, hardly seems to be enough to determine an employer relationship. Would that mean that a service like Fiverr — where creative people agree to do things for $5 — creates employees just because it sets the price. There are all different ways to create a marketplace and setting the price shouldn’t determine the nature of the relationship.

Plaintiff’s car and her labor were her only assets.

Of course, that’s kind of everything involved here. And if she’s providing all of those assets, it seems like a pretty strong argument for contractor, rather than employee.

Plaintiff’s work did not entail and “managerial” skills that could affect profit or loss. Aside from her car, Plaintiff had no investment in the business. Defendants provided the iPhone application, which was essential to the work. But for Defendants’ intellectual property, Plaintiff would not have been able to perform the work.

It’s that “but for” line that’s really ridiculous. Sure, the Plaintiff absolutely can drive people around without Uber. Or she could have signed up for any one of a number of similar platforms like Lyft or Sidecar. Or she could do deliveries for Postmates, Shyp, Instacart, Doordash or more.

In light of the above, Plaintiff was Defendants’ employee. Therefore, the Labor Commissioner has jurisdiction to adjudicate the instant matter.

In light of the above, I’m not sure that there can be platforms on the internet that help people make money without them being declared employees. Sell music on iTunes? You might be an Apple employee. Sell toys on eBay? You might be an eBay employee.

And yes, I recognize that some people will argue that Uber drivers may not be the best job in the world and they’re very much at the whims of Uber (ignoring all the other companies in the space they can go work for instead…). But this kind of decision really, really hurts everyone, including Uber drivers. It will mean vastly fewer opportunities for those drivers, and much greater controls over those drivers. It will lead to much less flexibility, fewer freedoms and a much more limited role for those drivers.

There is a reasonable argument to be had that perhaps we need a new form of classification that is somewhere between the traditional 1099 or W-2 worker, but it’s hard to see how the Labor Commission came to this conclusion without throwing out many, many, many contractor positions and suggesting that they might all be employees. That’s very dangerous for a part of the economy that is currently thriving and rapidly growing. This move to “protect” workers has a high likelihood of doing the exact opposite, creating many fewer work opportunities for everyone, and making a service that many people like to use a lot worse.

And, again, I know that some people don’t like Uber because of some of its business practices, but whether or not you “like” Uber should be separate from this particular question. The people celebrating this decision don’t seem to recognize how much damage it actually does to their own position. Either way, Uber has already appealed the decision and it will be quite some time before any final ruling is issued.

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