Uber Lawsuit and The Independent Contractor
Last month, Uber settled the class action lawsuit involving its drivers in Mass and CA. The court papers reveal that the settlement was $84 million, while some estimates put actual damages, had they lost as trial at anywhere from $750 million to $4.1billion. Is anyone surprised they settled?
Part of me hoped that the case would continue to the courts, since such a case might have brought some needed clarity to the mess that is independent contractor versus employee regulations.
In 1993, I started a firm, Collabrus, because of this very ambiguity. Collabrus acted as an employer for consultants during a project when the nature of the work or the client’s risk profile warranted that structure. It offered health insurance as well as specialized benefits designed for consultants, like low cost errors and omissions insurance. In setting up and running that business I learned more about independent contractor compliance than I ever cared to know, hence my interest in the Uber case.
I thought, had it continued, the Uber case could go either way. One of the reasons that this is such an ambiguous area is because “independent contractor” is an undefined term in the law. Much of our employment law is derived from British master servant laws which date back to the 14th century. In fact, they were developed following the massive carnage of the bubonic plague; since so many had died, laws were needed to define who of the remainder were the masters and who were the servants. Back then independent contractors (ICs) were not part of the picture.
Since there is no legal definition of an IC, though some states have done so, tests have been developed that take into account agency law constructs as well as other factors. The IRS has put the most widely used framework together in its “20 Points” that define an independent contractor. These include things like having their own tools, being able to experience a financial loss, and receiving no training. Unfortunately, not all of the conditions need to be met, and some are more important than others. This makes for a very murky picture of who may be an IC and who may be an employee. In the last 20 years, the two key things that businesses have drawn from the “20 Points” are that the most important considerations are direction and control. If you direct and/or control the work of someone, they are likely your employee.
So lets consider the Uber driver. One thing Uber has going for them is that they don’t train their drivers; drivers come to them knowing how to operate a vehicle. Uber may certify that the driving record be clean, but this wouldn’t be considered training or direction. The fact that drivers can set their own schedule is also a plus for Uber, since it reduces that sense of control. The fact that so many drivers are very part-time, i.e. less than 10 hours, is also a plus for them. Technology, though, muddies the picture. Drivers are given an iPhone by Uber to be able to hook up to their ride-haling platform. As such, Uber is providing the tools to some extent. Perhaps the biggest issue, and the one that an Administrative Law Judge highlighted in a ruling in 2015 where he deemed a Southern California driver an employee, is that Uber sets the pricing of all rides. As such, this is preeminent control over the driver.
Given my interest in the subject and being a very regular customer of Uber, I quiz every driver about their thoughts on the lawsuit. I have yet to encounter a driver who wants to be an employee. Most are teachers or students or retirees, who want the flexibility of time. The one suggestion I did get was that Uber could have done a better job helping the driver prepare for the tax implications of being an IC; as one teacher said, he'd always been a W2 employee, so it never occurred to him that he needed to save all of his receipts. So maybe Uber just needs a wonderful flyer, brochure or even app, entitled"Making the Most Money with Uber - How to Manage your Business Expenses." That seems like it would be a lot cheaper than another court case.