“Uber” Ruling Jars “Sharing Economy”

On June 3, 2015, Barbara Ann Berwick received a favorable ruling from a hearing officer for the California Labor Commissioner (the “CLC”) that the “ride sharing” company Uber must reimburse her for certain expenses reimbursable to employees under California law.  (Barbara Ann Berwick v. Uber Technologies, Inc., et. al., Case No. 11-46739 EK)(The other defendant in the case was Rasier – CA, LLC, a Delaware limited liability company and the local subsidiary through which Uber operates, as is the case in other jurisdictions.)  In so ruling, the CLC classified an Uber driver as an employee and not an independent contractor, the latter being Uber’s contention.  Uber appealed the ruling on June 16, 2015 to the Superior Court of California, County of San Francisco, Case No. CGC–15-546378.

PK Law previously reported on this matter and its place in the debate over “employee” versus “independent contractor” status.  This is not the first case to raise the argument that Uber drivers are employees.  An Uber driver in Florida recently won unemployment benefits when an accident forced him to stop driving, a decision also being appealed by Uber.  Due to California’s size and proclivities in its urban areas to use Uber’s services, the case seems to take on added significance.  Is the decision, as some have observed, a serious blow to the larger “sharing economy” or is it merely a blip in the further development of such “sharing services”?

According to the hearing officer’s findings of fact, Berwick was hired on or about July 25, 2014 and she “resigned”, without notice, on September 18, 2014.  Her services were performed pursuant to a written agreement with the defendants quoted at length in the findings of fact.  She requested that payments due her be paid to Berwick Enterprises, a corporation she created in 1988, and the defendants complied with that request, despite her contention at the hearing that she was only “notifying” them of the corporation’s existence.  As has been the case in the past, Uber asserted that it is a “technological platform”, bringing drivers and passengers together for “private transactions” and its drivers (“Transportation Providers”) were independent contractors.

Uber produced testimony that there is no control over the drivers’ hours and no minimum number of required trips.  There are no geographic restrictions on the drivers’ operations and they may opt to operate whenever they wish to do so.  Drivers may use an Uber provided phone or their own to access the Uber application on smart phones.  Drivers supply their own vehicles which must comply with Uber standards as to age and condition.

The drivers are required to secure a passenger permit from the state of California and must carry liability insurance of at least $1,000,000.  If the driver is inactive for 180 days, the smartphone application (“app”) used by a driver to bring the drivers and passengers together expires.  The defendants require personal and financial information from drivers, perform background checks on them and establish quality control procedures for both drivers and passengers through a rating system through which a poor score will result in termination of the smartphone application.

Berwick claimed reimbursement for tolls, a citation (and “legal fees”) she received while dropping off a passenger and also claimed compensation for the hours she worked, even though she conceded she was paid for the hours worked, but objected to the fact that her corporation was paid rather than her directly.

Relying on the California Supreme Court case of S.G. Borello & Sons, Inc. v. Dept. of Industrial Relations, 48 Cal.3d 341 (1989), the CLC hearing officer, Stephanie Barrett, ruled the defendants to be employers in accordance with the factors to be considered in the Borello case.

In ruling in Berwick’s favor, the hearing officer cited the following:

  • Complete control over Berwick was unnecessary, only “necessary control over the operation as a whole”.
  • Once “necessary control” is found there is a “presumption of employment”.
  • Vehicle ownership may be a much less important factor in finding an employment relationship in industries other than transportation, but even in those instances of other industries, an employment relationship has been found, e.g. pizza delivery persons deemed employees of the pizza firm.
  • Berwick’s service was not “an independent business or professional service”, but was “integral to Defendants’ business”.  According to the opinion: “Defendants are in business to provide transportation services to passengers.  Plaintiff did the actual transporting of those passengers.  Without drivers such as [Berwick], Defendants’ business would not exist.”
  • And further in the opinion: “Defendants are involved in every aspect of the operation.”
    • The “vetting” of drivers.
    • The registration of vehicles with the defendants.
    • Only approved, registered drivers may use the defendants’ application.
    • Berwick had no management responsibility.

An interesting aspect to the case is that while ruling under California law that Berwick was an employee entitled to reimbursement of expenses, her claim for wages was dismissed.  She conceded she was paid but, curiously, claimed she could not produce records regarding her payment, contending her corporation retained those records.  Having failed to produce such records, coupled with her concession as to her being paid, the hearing officer was left no choice but to dismiss her wage claim without ruling on whether her status as an employee entitled Berwick to additional compensation.

Some points to ponder when contemplating the effect of this case on the larger “sharing (or peer to peer) economy”:

  • Do such companies reach a “critical mass” at which point possible impediments to their future success are ignored, such as finding drivers are employees?  In essence, a “too big to fail” argument is asserted or contemplated.  (Uber has recently reported revenue of $415 million and is widely touted by celebrity figures as their mode of transportation of choice. Also, witness the February, 2015 agreement between Uber and the Maryland Public Service Commission to impose some regulatory control over Uber which was unsatisfactory to the taxi industry.  The Commission found that the agreement was “in the public interest”, presumably because of the widespread acceptance of ridesharing services amongst the public.)
  • The Berwick case applies only to Ms. Berwick.  Can its theoretical underpinnings be applied to others, similarly situated, but under different circumstances?
  • What impact might there be on the issue of involvement of the Internal Revenue Service or the U.S. Department of Labor in the classification (or misclassification) of the drivers?
  • If a complaining Uber driver dies during an employment and labor matter appeal, will that appeal die with them?  (It was reported that Ms. Berwick is age 65 and an increasing number of Uber drivers could be deemed “seniors” according to published reports.)

As for now, the saga of the Uber drivers and how they are classified for purposes of legal standing as employees or independent contractors is going to be a lengthy one.  Uber has the incentive and resources to continue appealing adverse decisions.

Employers who are concerned that they may have workers who are misclassified should have a labor and employment attorney assess the classification of their workers before they are contacted by a federal or state agency or a plaintiff’s attorney.  To contact a PK Law Labor and Employment Attorney click here and to contact a PK Law Corporate and Business Services Attorney click here. For additional information contact information@pklaw.com.

 

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