Wednesday, July 8, 2015

Modern Independent Contractor vs. Agent Problem: UBER DRIVERS

For those of you who teach agency (and the related concept of independent contractors) the following recent case example will make for a fun and culturally relevant example for many of your students.  

In March, 2015, the California Labor Commissioner’s Office issued an opinion finding that a  driver for the ride-hailing service mobile app company, Uber, should be classified as an employee, not an independent contractor.  The opinion details the control Uber exercised over the driver including setting the payment rates and terms, quality controls, service platforms, user communications, liability insurance requirements, and background checks all the while maintaining that drivers are independent contractors.  Citing to S. G. Borello & Sons, Inc. v. Dep't of Indus. Relations, 48 Cal. 3d 341, 350-51, 769 P.2d 399 (1989), the Commission analyzed the following elements:

(a) whether the one performing services is engaged in a distinct occupation or business;

(b) the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision;

(c) the skill required in the particular occupation;

(d) whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work;

(e) the length of time for which the services are to be performed;

(f) the method of payment, whether by the time or by the job;

(g) whether or not the work is a part of the regular business of the principal; and

(h) whether or not the parties believe they are creating the relationship of employer-employee.  

The Commission explained its finding that Plaintiff was an employee (not an independent contractor) (Commission Opinion, Berwick v. Uber, at 8)  with the following:

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…..The modern tendency is to find employment when the work being done is an integral part of the regular business of the employers, and when the worker, relative to the employer, does not furnish an independent business or professional service.

Id. at 8.

The Commission found that “Plaintiff’s work was integral to Defendants’ business…Without drivers such as Plaintiff, Defendants’ business would not exist.” Id.

Impact Discussion:

Many technology companies, like Uber, contend that their virtual marketplaces facilitate individuals acting as contractors, using their own possession to provide services for a personal profit. The argument is that this empowers workers giving them flexibility and freedom to set their own hours and success. A counter argument raised by labor activists and others is that this type of freelance work strips workers from certainty of wages and job status as well as other benefits of traditional employment such as health care, retirement and sick leave benefits. Opponents argue that what is being touted as good for individuals is just a means to minimize costs and increase corporate, not individual, profits. 

[Note, I have included this, along with a host of other case updates and teaching materials, in my new Business Organizations electronic casebook, available through ChartaCourse starting fall 2015.]

Edited on 7/10/15 to add:  colleague, friend and fellow blogger Haskell Murray suggested this article (How Crowd Workers Became the Ghosts in the Digital Machine) from The Nation on crowd-workers and the thought-provoking discussion on whether minimum wage laws should apply to these workers.  Joan Hemminway, same credentials above, noted that the Wall Street Journal Blog is also commenting on the Uber case.


-Anne Tucker

Anne Tucker, Business Associations, Corporations, Current Affairs, Unincorporated Entities | Permalink


Very interesting, Anne. Thanks so much for posting this--and for highlighting your forthcoming contribution to teaching materials on Business Organizations. I hope that you'll say more about the latter at a later date here on the BLPB. I, for one, am interested in knowing more.

On the employer/contractor point--and going somewhat far afield from the nature of your post--I wonder if there are any interesting observations that can be made about Uber from the perspective of a two-sided market. Labor markets are archetypal two-sided markets, and I kept thinking as I read your post that Uber drivers might not want to be Uber drivers if they are considered employees for agency, employment, tax or other purposes, and Uber might not want to retain their services if they are classified as employees for one or all of those purposes. In other words, I wonder if the whole market might collapse because of the cost associated with the legal characterization of the workers . . . . Just a thought. Again, far afield from the purpose of your post, but perhaps something to explore in related legal scholarship.

Posted by: joanheminway | Jul 8, 2015 4:38:19 PM

Your comment raises valid and interesting points Joan. The business model of mobile connective services is built on the independent contractor and non-assumption of costs and risks associated with that status. If other courts view the relationship similarly to the California Labor Dept., there will undoubtedly be consequences on how services are delivered and the costs that consumers pay for those services.

Posted by: Anne Tucker | Jul 9, 2015 9:18:59 AM

Joan, I don't think your comments are far afield at all and that's an argument that many use to justify this new normal. As a former employment lawyer the issue of independent contractors vs employees was a very real issue for my internal and external clients and is one of the top areas of enforcement for state and federal governments right now. I had planned to discuss the Uber case when I get to agency this year and I may even assign this blog post and comments as well. Thanks for the contribution.

Posted by: MARCIA NARINE | Jul 10, 2015 2:50:19 AM

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