Companies like Uber have come to not only symbolize the gig economy, but also serve as bellwethers—leading the way, somewhat haphazardly, through uncharted legal territory. Uber’s classification of its drivers as independent contractors, and not as employees, is still one of the biggest and most closely watched issues surrounding this new business model. Here’s a look at recent developments in the U.S. and what they mean for employers.
Class Action Settlement
Last month saw the conclusion of Hood v. Uber Technologies, the first national class action alleging that Uber misclassified its drivers as independent contractors. The plaintiff drivers claimed they were in fact employees and should therefore be entitled to minimum wage, overtime, and other rights under the federal Fair Labor Standards Act (FLSA).
The class in Hood included more than 5,000 drivers who had opted out of Uber’s arbitration agreement. Uber agreed to settle the case for approximately $1.3 million, which was approved in January 2019. As part of the settlement, class members who currently drive for Uber waived their rights to opt out of current/future arbitration agreements with Uber.
In another set of misclassification cases, Uber’s arbitration clause may have had unintended consequences. In the company’s home state of California, last September the Ninth Circuit Court of Appeals ruled that Uber’s arbitration agreements (which included a class action waiver) are enforceable. The court’s ruling overturned the class certification in O’Connor v. Uber and essentially granted Uber’s motion to compel arbitration in three lawsuits.
What happened next probably surprised those who hailed the decision as a clear win for Uber. During the final months of 2018, more than 12,500 Uber drivers reportedly served individual arbitration demands on the company. Given that each arbitration required Uber to pay a $1,500 retainer fee, the company was suddenly facing big costs. As of this writing, it’s been reported but not confirmed that Uber reached a tentative settlement with the drivers in arbitration, most likely to smooth the way for its planned IPO.
New Minimum Wage in NYC
Meanwhile, in New York City, the Taxi and Limousine Commission implemented new wage rules for drivers who are treated as independent contractors. Under the new payment formula, which went into effect at the end of 2018, Uber and other ride-hailing companies must pay independent contractor drivers the equivalent of a $17.22 minimum hourly wage—the same as taxicab drivers. This is expected to have a major impact on Uber’s business in New York City, and many are speculating it could inspire similar moves in other cities.
What Should Employers Do?
As I noted in my 2016 post “Uncertainty in the Gig Economy,” we still don’t have a definitive answer to the underlying question: Are workers such as Uber drivers properly classified as independent contractors or as employees?
A federal court in Philadelphia (2018) and a state appeals court in Florida (2017) both said Uber drivers are not employees. But state agencies in California, Oregon and New York (2018) have said that Uber drivers are employees under certain state laws.
All employers need to understand the differences between employee and independent contractor status under local, state, and federal laws, and treat workers accordingly. For employers that rely on gig workers and have multistate operations, the different rules being adopted in different jurisdictions may require more nuanced policies.
It’s also a good idea to periodically audit your company’s worker classifications, to make sure they’re still accurate and up to date. These days, with both our laws and our concepts about employment undergoing a sea change, it’s more important than ever to keep up with the times.