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Uber Suffers Independent Contractor Classification Setbacks in CA

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In the midst of a series of worker-friendly court decisions against Uber, the California Labor Commission found Uber liable for misclassifying its drivers as independent contractors instead of employees under the California Labor Code.

Uber lost an unemployment case last month in the state of Florida, and in March found itself ordered to stand trial before a jury on the issue of allegedly unpaid wages, including overtime, as well as unreimbursed “employee” expenses under California law.

The plaintiff driver, Barbara Berwick, worked for Uber and its operating company, Raiser-CA LLC, for less than two months in 2014. Her standard driver agreement with Uber set out the relationship of the parties explicitly as independent contractors. The Labor Commission, however, found that Berwick “was defendant’s employee.”

A Test of Control

The California Labor Commissioner’s decision first focused on the Uber/Raiser contract Berwick signed, addressing each of Uber’s arguments as to why Berwick should be classified as an independent contractor and not covered by the California Labor Code. After quoting many of the contract clauses at length, the Labor Commissioner made the following findings:

  • Uber retained control over the operation as a whole, and was “involved in every aspect of the operation.”
  • Uber vets prospective drivers.
  • Drivers must pass background checks.
  • Uber controls the tools used by drivers to the extent Uber dictates details about the types of cars that can be used.
  • Uber monitors the drivers’ approval rating and terminates their relationship with Uber if the rating falls below a specific level.
  • While Uber allows drivers to hire others, only Uber approved drivers can use the Uber software.
  • Uber discourages tips by customers.
  • Uber exercises its discretion to decide whether to pay a cancellation fee to drivers.

 

California Labor Code 2802 requires employers to reimburse employees for all expenses that an employee “necessarily expends in the discharge of the employee’s duties,” which totaled $4,142 for Berwick, interest included. This amount may not seem intimidating, but had Berwick worked for Uber for one year rather than two months, Uber’s liability would be $25,000 for one employee.

[sws_pullquote_right] See Also: Uber Drivers Seek Classification As Employees [/sws_pullquote_right]

Major Companies, Beware

It appears from the Labor Commission’s decision that Uber has not yet taken the steps necessary to shield itself from independent contractor non-compliance. Despite being in the middle of high-profile litigation, Uber still must reexamine its business model for defects in structure and implementation. FedEx recently settled an independent contractor misclassification class action case in California for $228 million, and it is believed the bulk of the settlement figure represents reimbursement of necessary expenses.

Other national corporations should view these recent decisions as motivation to reexamine their own business models before finding themselves to be defendants in employment lawsuits.

The Labor Commission used the California test for independent contractor status, which provides 11 factors for courts to consider in determining employee or contractor status. This legal test is comparable in many respects to the test used under the federal wage and hour law, but it is not as stringent as some other states. A case is currently pending before the California Supreme Court that may impose a more worker-friendly standard in California than what is already being applied by the Labor Commission.

The case is Berwick v. Uber Technologies, Inc., No. CGC-15-546378 (Super. Ct. San Francisco County, June 16, 2015).

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