Uber and Lyft have been sued in separate class action lawsuits in California by drivers challenging
the two companies’ classification of the drivers as independent contractors. The plaintiffs in the two cases argue that the drivers should be classified and paid as employees, which triggers many additional Labor Code provisions for the drivers than if they are classified as independent contractors.
The cases are good reminders to California employers, and start-ups especially, about how difficult the analysis can be in some cases. For example, in early March 2015, the judge denied Uber’s motion for summary judgment on the issue (the opinion is embedded below). Employers should take the following five lessons from this pending litigation:
1. The independent contractor analysis is becoming extremely difficult to apply in technology companies or “sharing economy” companies.
Part of the difficulty arises from the fact that the test to determine whether a worker is properly classified was developed before these new business models existed, and as the judge noted in the Uber case, “many of the factors in that test appear outmoded in this context.” With this ambiguity in the existing law, employers should approach with caution.
2. The burden is on the employer to prove that the workers are properly classified as independent contractors.
If the putative employee establishes a prima facie case (i.e., shows they provided services to the putative employer), the burden then shifts to the employer to prove, if it can, that the “presumed employee was an independent contractor.” Narayan v. EGL, Inc., 616 F.3d 895, 900 (9th Cir. 2010). Employers need to be ready to rebut this burden of proof.
3. The primary factor of the analysis is the control over the worker.
The “most significant consideration” is the putative employer’s “right to control work details.” S.G. Borello & Sons, Inc. v. Dep’t of Indus. Relations (Borello), 48 Cal. 3d 341, 350 (1989). The Supreme Court has further emphasized that the pertinent question is “not how much control a hirer exercises, but how much control the hirer retains the right to exercise.” Ayala v Antelope Valley Newspapers Inc., 59 Cal. 4th 522, 533 (2014). In addition, it does not matter if the worker agreed that he was an independent contractor, the determination is made based on the factors of the test.
4. The secondary part of the analysis is an evaluation of 13 factors.
In Borello, the California Supreme Court set out the secondary indications relevant to the analysis of whether a worker is an independent contractor or employee:
- whether the one performing services is engaged in a distinct occupation or business;
- 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;
- the skill required in the particular occupation;
- whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work;
- the length of time for which the services are to be performed;
- the method of payment, whether by the time or by the job;
- whether or not the work is a part of the regular business of the principal; and
- whether or not the parties believe they are creating the relationship of employer-employee.
As the court in Uber noted, the Borello case also “approvingly cited” five additional factors:
- the alleged employee’s opportunity for profit or loss depending on his managerial skill;
- the alleged employee’s investment in equipment or materials required for his task, or his employment of helpers;
- whether the service rendered requires a special skill;
- the degree of permanence of the working relationship; and
- whether the service rendered is an integral part of the alleged employer’s business.
5. The analysis usually does not turn on one factor.
As the court noted in Uber’s case:
…rarely does any one factor dictate the determination of whether a relationship is one of employment or independent contract. Here, numerous factors point in opposing directions. As to many, there are disputed facts, including those pertaining to Uber’s level of control over the “manner and means” of Plaintiffs’ performance.
While the Uber and Lyft cases are relatively in the early stages of litigation and the Plaintiffs still have to move for class certification, the cases are a good reminder of the difficulties surrounding the classification of independent contractors and how important to conduct this analysis of independent contractors early on in the relationship. For start-ups without the financial backing that Uber and Lyft have, just the initiation of this type of litigation would severely injure the company’s chances of success due to the monetary and time resources that litigation sucks up, in addition to having to shift focus on the primary business goals, and large potential liability if the workers were misclassified.