Uber Drivers - Independent Contractors or Employees?

05 November 2015

This and a number of other cases suggest a sea change has begun.  For example, the National Labour Relations Board is considering whether it will define McDonalds as a joint employer of crew in its franchised restaurants; in June FedEx agreed to pay $228M to settle a court case by drivers that they had been wrongly classified as contractors; and some on-demand firms such as Luxe (a car parking service) and Instacart (a delivery company) have already reacted by reclassifying their contractors as employees.

What is Uber? Expand article
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What is Uber?

Uber provides a service whereby individuals use a Uber software App on their smartphone to request transport. Through the App the customer is matched up with an available driver who then provides the transport using their private vehicle, and delivers the customer to their destination. The customer pays for their ride via credit card, the payment is received by Uber which then pays the driver for the transport service, less Uber’s fee. Unlike traditional taxis, Uber drivers don’t carry cash, and they don’t pick up fares which have not been requested through the Uber app service. 

Background Expand article
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Recently some drivers for Uber in California have gone to Court to claim they are employees of Uber rather than independent contractors. They claim that as employees they are entitled to various entitlements under Californian law which they have not received from Uber, for example the right to receive tips (or gratuities) paid by customers. For Uber’s part it is clear they have always considered the drivers to be independent contractors, and not employees.

Perhaps quite surprisingly to those familiar with New Zealand employment law, the question of whether someone is an independent contractor or an employee under California Law, is a mixed question of fact and law, which is typically resolved by a jury. This contrasts with the position in New Zealand where this question (i.e. whether an individual is an independent contractor or an employee) is routinely resolved by the Employment Relations Authority. 

Driver Registration Expand article
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Driver Registration

To be approved as an Uber driver, applicants are vetted and must provide their driver’s licence, pass background checks and a city knowledge test, provide information about their vehicle registration and insurance, and attend an interview with Uber.  Importantly, they also sign a contract which explicitly states they are an independent contractor.



Why Uber says the drivers are not employees Expand article
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Why Uber says the drivers are not employees

In March 2015 Uber sought judgement that the drivers were independent contractors. It argued amongst other things that Uber was a technology company not a transportation company, and that its software was nothing more than a “lead generation platform” that connected businesses that provide transportation with passengers who desired rides. Uber pointed out that it did not own any vehicles and said it did not employ any drivers.

The Court did not accept that Uber’s arguments and referred to a number of Uber communications in which it described itself as providing a transportation system or transportation service and noted its tagline is “Everyone’s Private Driver”.

In other arguments in support of its position, Uber referred to exercising minimal control over how the drivers actually provide transportation services to Uber customers; that drivers set their own hours and work schedules; and that drivers are subject to minimal direct supervision. The drivers disputed all these contentions.

The legal tests in California Expand article
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The legal tests in California

Under California law the starting point is a presumption that because the drivers perform services for Uber for the benefit of Uber, they are presumed to be employees (described as “presumptive employees”). In other words, under California law once a person can show they provided services for another, this is evidence of employment and they are presumed to be an employee in the absence of any evidence to the contrary. The burden then shifts to the presumed employer to show that the person was not an employee but an independent contractor.

The Court referred to a decision of the United States Supreme Court known as the “Borello” decision (S.G Borello & Sons Inc v Department of Indus Relations (Borello), 48 Cal. 3d 341,350 (1989) which lists a number of considerations which the District Court in California will need to ensure are taken into account in deciding the employment status of Uber drivers.

The main consideration is the presumed employer’s right to control the work. This is not how much control they actually exercise, but how much control they have the right to exercise. In determining this a key factor is whether the presumed employer has the right to discharge at will without cause. In other words, under California law if the presumed employer has that right it strongly supports an employment relationship. The employee has a corresponding right to quit the job whereas an independent contractor is required to complete their contract.

So the extent to which Uber has the right to control the details of the services provided by the drivers will be a critical question to be examined before a decision can be made.  The Borello decision also listed the following factors as relevant to the employee/independent contractor question:

  • Whether the one performing the services is engaged in a distinct occupation or business;
  • The kind of occupation, with reference to whether 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 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 part of the regular business of the principal; and
  • Whether or not the parties believe they are creating the relationship of employer and employee.

The Court made it clear these factors are intertwined and no one single factor will determine the outcome.

A subsequent decision in September 2015 focused primarily on whether the case could proceed as a class action i.e.as a case on behalf of approximately 160,000 drivers. This involved a consideration of whether the drivers’ working relationships with Uber were sufficiently similar that a jury could resolve their legal claims all at once. The Court decided that the case could proceed as a class action although it was very clear to spell out the criteria that had to be met for a driver to fall within the defined class.



Summary Expand article
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At this stage the question of whether or not Uber drivers are employees or independent contractors remains to be decided. 

It should be noted there are some very clear differences between the position under California law and the position in New Zealand.  For instance here, while an employment agreement may contain a no-fault termination provision in some circumstances, as a general rule there needs to be a good reason to terminate an employee’s employment and a procedurally fair process must be followed. Merely providing services does not give rise to the presumption of an employment relationship which places the onus on the “employer” to prove otherwise – i.e. a contracting relationship. However, one similarity is that the label placed by the parties on the relationship does not necessarily mean the relationship is that described by the parties. Merely calling an agreement an independent contract does not make it so if all the relevant factors to be considered demonstrate the relationship is that of employer/employee. Therefore while the Uber agreements refer to independent contracting, this does not of itself decide the issue.

Ultimately the Uber litigation will be decided based on the myriad of factors which are relevant to the particular circumstances of the case. As stated earlier, the Court has said many of the factors in the traditional test appear outmoded and other factors which might arguably be reflective of the current economic realities are not encompassed by the traditional test. While the Court has said that it is possible that new rules may be enacted particular to the so called “sharing economy” until then the traditional tests will continue to apply.

A case management conference for the class action was scheduled for 22 October.  We will keep you informed as events unfold. However, with unionisation in the US private sector down to 6.6% the case is building for more protections for people not engaged as employees.