Workers' Compensation

The “Uberization” of Jobs: Employee or Independent Contractor?

To not apply the possibly antiquated rules set forth in Borello to the new “share” economy could mean that thousands of new workers in California go without necessary protections

The Uber business model could be a sea change in how many of us work and how we think about our jobs—think piecemeal work, supply and demand, real-time tracking of work performance and customer satisfaction (see N.Y. Times article). Drivers for ride sharing companies, such as Uber and Lyft, use their own personal cars or black sedans or other limousine-like vehicles. The company’s transportation system, via a smartphone app, connects these drivers with persons seeking transportation.

A key legal question is whether Uber and Lyft drivers are employees or independent contractors. Two recent rulings could have wide implications for the “on demand economy” in California and possibly make these companies pay for Social Security, workers’ compensation, and unemployment insurance.

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In O’Connor v. Uber Technologies, Inc., 2015 U.S. Dist. LEXIS 30684 [2015 U.S. Dist. LEXIS 30684] (Mar. 11, 2015), the U.S. District Court, Northern District of California, denied Uber’s motion for summary judgment to declare the plaintiffs/drivers independent contractors as a matter of law. As explained by the court, the drivers are Uber’s presumptive employees because they “perform services” for the benefit of Uber. Citing Narayan v. EGL, Inc., 616 F.3d 895, 900, 75 Cal. Comp. Cases 724 [75 CCC 724] (9th Cir. 2010); see also Yellow Cab Coop. Inc. v. Worker's Comp. Appeals Bd., 226 Cal. App. 3d 1288, 1294, 277 Cal. Rptr. 434, 56 Cal. Comp. Cases 34 [56 CCC 34] (1991). Whether an individual should ultimately be classified as an employee or independent contractor under California law presents a mixed question of law and fact that must typically be resolved by a jury. Here, material facts remain in dispute and a reasonable inference of employment relationship may be drawn.

The court noted that pursuant to S.G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal. 3d 341, 256 Cal. Rptr. 543, 769 P.2d 399, 54 Cal. Comp. Cases 80 [54 CCC 80], California law’s most significant, but not only, consideration in determining whether a worker is an employee or independent contractor is the putative employer’s “right to control work details.” The weight given to various Borello factors* depends on their particular combinations. The court recognized that applying the traditional multifactor test of Borello to the case at hand will pose challenges because the Borello test evolved under an economic model completely unlike the new “sharing economy”.

In Cotter v. Lyft, Inc., 2015 U.S. Dist. LEXIS 30026 [2015 U.S. Dist. LEXIS 30026] (Mar. 11, 2015), the U.S. District Court, Northern District of California, denied plaintiffs/drivers and defendant Lyft’s cross-motions for summary judgment to declare the plaintiffs/drivers employees as a matter of law or independent contractors as a matter of law, respectively.

The court held that whether an individual should be classified as an employee or an independent contractor under California law presents a mixed question of law and fact to be resolved by the jury. Here, the court found that the drivers were Lyft’s presumptive employees because they performed services for Lyft’s benefit, that, pursuant to Borello, California law’s most significant, but not only, consideration in determining whether a worker is an employee or an independent contractor is the putative employer’s “right to control the manner and means of accomplishing the result desired,” that the weight given to various other Borello factors* depends on their particular combinations, and that in the present case material facts remain in dispute.

*Borello factors: “(a) whether the one performing services is engaged in a distinct occupation or business; (b) 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; (c) the skill required in the particular occupation; (d) whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work; (e) the length of time for which the services are to be performed; (f) the method of payment, whether by the time or by the job; (g) whether or not the work is a part of the regular business of the principal; and (h) whether or not the parties believe they are creating the relationship of employer-employee.” (48 Cal. 3d at p. 351 [p. 351])

COMMENTARY:

These cases both have significant implications for California and California’s workers’ compensation. Up until now, the occupations that have typically been the subject of the “independent contractor” verses “employee” cases have focused on more traditional businesses such as transportation companies hiring truck drivers or real estate offices hiring real estate agents. In fact, the seminal case on the issue is S.G. Borello & Sons, Inc. v. Dep’t. of Industrial Relations (Borello) 48 Cal. 3d. 341, 256 Cal. Rptr. 543, 769 P.2d 399, 54 Cal. Comp. Cases 80. In Borello, the California Supreme Court addressed farm laborers harvesting crops under a share-farmer agreement.

In the 25 years since Borello was decided, however, both the economy and California workers’ compensation have seen major changes. Technology has continued to advance. We have gone from desk top computers to having access to the internet at our fingertips. Technology companies have continued to grow and have become an increasingly important source of employment to the State of California.

The question is whether these technology companies should be subjected to the same rules that have been applied since Borello? Should a software application that matches riders with drivers be deemed an “employer” for purposes of applying laws protecting employees including workers’ compensation?

The cases involving the drivers for Uber and Lyft may just be the tip of the iceberg. Our new “share” economy will give rise to many new technologies with many new services being provided to consumers. Applying the Borello factors to these new technologies will likely result in a finding that these drivers were, in fact, “employees”. If this is the finding, this will negate many if not all of the cost savings and advantages created by the new technology. To not apply these possibly antiquated rules, however, could mean that thousands of new workers go without necessary protections.

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