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California sues Uber and Lyft alleging driver misclassification

In furtherance of California’s AB 5, the State of California has sued Uber and Lyft, seeking to re-characterize their drivers as employees, not independent contractors. The State summarized its case in the introductory paragraphs of its Complaint, as follows:

5. Uber and Lyft are transportation companies in the business of selling rides to customers, and their drivers are the employees who provide the rides they sell.  The fact that Uber and Lyft communicate with their drivers by using an app does not suddenly strip drivers of their fundamental rights as employees.

6. But rather than own up to their legal responsibilities, Uber and Lyft have worked relentlessly to find a work-around.  They lobbied for an exemption to A.B. 5, but the Legislature declined.  They utilize driver contracts with mandatory arbitration and class action waiver provisions to stymie private enforcement of drivers’ rights.  And now, even amid a once-in-a century pandemic, they have gone to extraordinary lengths to convince the public that their unlawful misclassification scheme is in the public interest.  Both companies have launched an aggressive public relations campaign in the hopes of enshrining their ability to mistreat their workers, all while peddling the lie that driver flexibility and worker protections are somehow legally incompatible.

7. Uber’s and Lyft’s motivation for breaking the law is simple: by misclassifying their drivers, Uber and Lyft do not “bear any of [the] costs or responsibilities” of complying with the law.  (Dynamex, supra, 4 Cal.5th at p. 913.)  When addressing investors, Uber pulls no punches:  “Our business would be adversely affected if Drivers were classified as employees instead of independent contractors.”  (Uber Securities and Exchange Com. (“SEC”) S-1, p. 28 [Filing Date: April 11, 2019].)

8. As one federal district judge recently observed: “[R]ather than comply with a clear legal obligation, companies like Lyft are thumbing their noses at the California Legislature . . . .”  (Rogers v. Lyft (N.D. Cal. Apr. 7, 2020, No. 20-CV-01938-VC) ___ F.Supp.3d ___ [2020 WL 16484151, at *2].) 9. The State’s laws against employee misclassification protect all Californians.  They protect workers by ensuring they receive the compensation and benefits they have earned through the dignity of their labor.  (Dynamex, supra, 4 Cal.5th at p. 952.)   They protect “law-abiding” businesses from “unfair competition,” and prevent the “race to the bottom” that occurs when businesses adopt “substandard wages” and “unhealthy [working] conditions,” threatening jobs and worker protections across entire industries.  (Id. at pp. 952, 960.)  They protect the tax-paying public, who is often called upon to “assume responsibility” for “the ill effects to workers and their families” of exploitative working arrangements.  (Id. at p. 952-53.)  They are a lifeline and bulwark for the People against the “erosion of the middle class and the rise in income inequality.”  (A.B. 5, § 1(c).) 10. The time has come for Uber’s and Lyft’s massive, unlawful employee misclassification schemes to end.  The People bring this action to ensure that Uber and Lyft ridehailing drivers—the lifeblood of these companies—receive the full compensation, protections, and benefits they are guaranteed under law, to restore a level playing field for competing businesses, and to preserve jobs and hard-won worker protections for all Californians.

The Complaint seeks to have Uber and Lyft’s drivers re-classified as employees, not independent contractors, the imposition of statutory penalties, and an open-ended to-be-proved basket of remedies involving “minimum wages, overtime wages, business expenses, meal and rest periods, wage statements, paid sick leave and health benefits, and social insurance programs.”

Although the drivers at-issue may have entered into arbitration agreements, it is anticipated the State’s lawsuit will not be subject to arbitration because, in this case, it is the State that has filed suit, and the State was not party to the driver arbitration agreements.

Third Circuit rejects Uber’s ability to enforce arbitration agreement with its drivers

Applying the Supreme Court’s recent Oliveira decision, the Third Circuit held that Uber cannot enforce its arbitration agreement with drivers engaged in interstate commerce. In doing so, the Court held that the exception in federal law that prohibits arbitration agreements for drivers engaged in interstate commerce applies not only to drivers who transport goods but also drivers who transport services.

Source:  Singh v. Uber Technologies, Inc., — F.3d — (3rd Cir. 9/11/19).

Colorado Supreme Court holds referral service to be an employer, striking independent contractor classification

In contrast with the Trump Administration’s approach to so-called gig-economy cases, the Colorado Supreme Court recently struck one company’s attempt to classify its workers as independent contractors, not employees.

At the federal level, the Trump Administration has, through both the NLRB and DOL, recently held that (at least some) gig-economy companies, like Uber in particular, are technology companies that merely connect consumers with service providers (example, drivers), and as such, they may lawfully characterize — at least for federal purposes — those service provides as independent contractors.

In this case, the Colorado Supreme Court rejected a company’s argument that it was merely a referral source connecting consumers with housecleaners. The Court held the company was, therefore, liable for Colorado state unemployment taxes.

Does the case signal a rejection of the Trump Administration’s approach at the Colorado state level? Or is the case distinguishable from situations like Uber’s paradigm? These questions have yet to be litigated. It may simply be that the Colorado Supreme Court will reject, at the state level, at least for unemployment, if not also workers compensation, the Trump Administration’s approach at the federal NLRB and DOL level.

Alternatively, the case may suggest some key factual distinctions about the particular company in this case. In the Colorado Supreme Court case, the evidence — unlike arguably in other gig-economy cases — was that the referral company did quite a bit more than simply refer. The Supreme Court noted testimony that it assisted cleaners, it trained them, it exercised “quality control,” it even controlled the cleaners’ ability to hire assistants. The Supreme Court held that all of this combined to be “exactly the control and direction” sufficient to convert a company into an employer, in other words, independent contractors into employees.

Another distinction may have been the apparent lack of technology underlying the cleaning company’s business model. As the federal agencies have noted in their gig-economy cases, companies like Uber characterize themselves as, first and foremost, technology companies. They have invested in and run considerable technological platforms to effectuate their referral systems. It is those very technologies that created their business models. The federal agencies noted that running those technologies is, therefore, the business of a gig-economy company, like Uber. In other words, Uber’s real business is running that technology, not driving. Thuse the company and its service providers are, those agencies have said, in two different businesses.

One thing is clear, companies in Colorado that use independent contractors should immediately review those classifications with experienced legal counsel. This case reflects a continuingly narrow approach to independent contractor classifications at the state level.

Additionally, it should be noted that the Colorado Supreme Court did not note that this company had written agreements in place. Both Colorado state unemployment laws and workers compensation laws create a rebuttable presumption of independent contractor status if companies have written agreements that meet particular statutory requirements. In addition to reviewing their independent contractor classifications, companies should ensure they consult with legal counsel to develop compliant written independent contractor agreements, so they can at least assert the benefit of such a presumption in these cases.

Source: Colorado Custom Maid v. ICAO, case no. 17SC350 (Colo. 5/28/19).

Uber and other gig-economy companies score major wins at NLRB and DOL

Both the NLRB and DOL have issued letters advising that gig-economy companies, like Uber, are not employers but have instead properly certain workers, like drivers, as independent contractors.

The letters come on the heels of NLRB decisions earlier this year holding that the Board will no longer look at potential or even contractually-available control. Rather it will focus on actual control exercises by the company, and in doing so will not consider control that is required by the government. This new test focuses on whether the independent contractor enjoys his-her own “entrepreneurial opportunity.”

In the NLRB letter, NLRB General Counsel opined that Uber in particular is, under this new test, not engaging drivers as employees but has properly characterized them as independent contractors. Specifically General Counsel noted that drivers control their own time of work, place of work and are free to drive for competitors, with many actually doing so. Drivers provide their own vehicles, fuel and maintenance. They operate without supervision by Uber, rarely interacting with Uber’s management except when a problem arises.

In the DOL’s letter, the DOL did not identify the gig-economy company at-issue but reaffirmed in general that such companies are, for similar reasons, properly able to characterize workers as independent contractors.

Source: NLRB General Counsel Advice Memorandum case no’s. 13-CA-163062, -158833 and -177483; DOL Wage-Hour opinion letter no. FLSA2019-6 (4/29/19).

NLRB not done redefining independent contractors

According to Bloomberg BNA, NLRB Chair John Ring has said the Board may follow up on its recent decision with formal rule making that would produce regulations that detail its independent contractor test.

“I think codifying significant parts of our labor code into regulations is one way that we can provide some clarity and predictability,” Ring told a group of attorneys Jan. 28 at a conference in New York. “There’s the ability to take whole swaths of the law and put it into one comprehensive set of regulations.”

The board historically has answered legal questions through individual case decisions. Ring said regulations issued through the notice and public comment process bring some permanence because they’re harder for a new administration to undo. He also said the board can use rules to provide examples of how legal questions should be answered in various scenarios, rather than waiting for cases to reach the board one by one.

Source: www.bloomberglaw.com/exp/eyJjdHh0IjoiRExOVyIsImlkIjoiMDAwMDAxNjgtOTUwMi1kMmI1LWE5ZWItZjc1YWZmZmQwMDAwIiwic2lnIjoicEowQURONEVzenVtZWl6ZUVHUU94Q3o2NlhBPSIsInRpbWUiOiIxNTQ4NzExMjAwIiwidXVpZCI6Im51YnhOZzFiWVRBUGNsSkYyajNLTFE9PUtNbCtPS3dnMkVtc3Y2UGZ1U0Jlc0E9PSIsInYiOiIxIn0=

Board reverses course on Obama-era independent contractor analysis

Continuing a series of changes charted by the Trump Board, the NLRB has reversed course on the Obama Board’s approach to independent contractor analysis. In a case involving SuperShuttle drivers, the Board has made it easier for companies to use, and for entrepreneurs to become, independent contractors.

Whereas the Obama-era approach looked at whether the company had the ability to control a putative contractor. Now the Board will look to the exercise of actual control and specifically whether the exercise of actual control is sufficient to negate the contractor’s “entrepreneurial opportunity.”

The Board cautioned that a contractor’s “economic dependency on the company does not negate the existence of ‘economic opportunity.'” “(A)ny sole proprietor of a small business that contracts its services to a larger entity” is, the Board explained, economically dependent on that company.

Large corporations such as Fed-Ex or SuperShuttle will always be able to set terms of engagement in such dealings, but this fact does not necessarily make the owners of the contractor business the corporation’s employees.

Additionally the Board cautioned that control, which is required by the government, should not be considered in this analysis.

(R)equirements imposed by governmental regulations do not constitute control by an employer; instead, they constitute control by the governing body.

Instead, the Board will focus its analysis on the 10 common law factors set forth in the Restatement (Second) of Agency, sec. 220, which the Board quoted in length, as follows:

In determining whether one acting for another is a servant or an independent contractor, the following matters of fact, among others, are considered:

(a) The extent of control which, by the agreement, the master may exercise over the details of the work.

(b) Whether or not the one employed is engaged in a distinct occupation or business.

(c) The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the employer or by a specialist without supervision.

(d) The skill required in the particular occupation.

(e) Whether the employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work.

(f) The length of time for which the person is employed.

(g) The method of payment, whether by the time or by the job.

(h) Whether or not the work is part of the regular business of the employer.

(i) Whether or not the parties believe they are creating the relation of master and servant.

(j) Whether the principal is or is not in the business.

Additionally the Board will consider whether the putative contractor has “significant entrepreneurial opportunity for gain or loss.” Then, the Board will consider related relevant factors, as follows:

Related to this question, the Board has assessed whether purported contractors have the ability to work for other companies, can hire their own employees, and have a proprietary interest in their work.

Applying this test to the SuperShuttle drivers, the Board held they are properly characterized as independent contractors. The Board noted that franchisee-drivers own their own vans. They control “their daily work schedules and working conditions, and the method of payment, where  franchisees pay a monthly fee and keep all fares they collect.” Additionally, “SuperShuttle has little control over the means and manner of the franchisees’ performance while they are actually driving and that SuperShuttle’s compensation is not related at all to the amounts of fares collected by the franchisees.” Their “Unit Franchise Agreement” states they are independent contractors.

The case will have major impact for companies of all kinds, not just franchisees.

Source: SuperShuttle DFW, Inc., 367 NLRB No. 75 (1/25/19).

California adopts ABC Test for gauging independent contractor classification

The California Supreme Court announced a new test for determining whether a worker is truly an independent contractor or an employee under California’s wage orders (regulating wages, hours and working conditions).

(I)n determining whether, under the suffer or permit to work definition, a worker is properly considered the type of independent contractor to whom the wage order does not apply, it is appropriate to look to a standard, commonly referred to as the “ABC” test, that is utilized in other jurisdictions in a variety of contexts to distinguish employees from independent contractors. Under this test, a worker is properly considered an independent contractor to whom a wage order does not apply only if the hiring entity establishes:

(A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact;

(B) that the worker performs work that is outside the usual course of the hiring entity’s business; and

(C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.

This new test continues California’s approach to scrutinizing whether the relationship includes a right to control and direct the work (test A) and whether the worker is engaged in an independent trade (test C), but adds a focus on whether the worker is doing “work that is outside the usual course” of the company’s own business (test B).

Companies that use independent contractors to do work that is within the company’s own “usual course” of work, much less that is being done by its own employees, should take special care to review this new test and determine if they are in compliance.

Source: Dynamex Operations v. Superior Court, case no. S222732 (Cal. 4/30/18).

New York cracks down on independent contractors

Effective May 15, 2017, New York enacted the “Freelance Isn’t Free Act,” which restricts a company’s right to enter into independent contracts. Restrictions include the requirement for a written contract, full payments within 30 days or by the deadline set forth in the written contract (for payments of $800 or more) and protection from retaliation.

Penalties include statutory damages, double damages, injunctive relief, and attorney’s fees. Individuals may sue to vindicate their rights in state court, and if satisfied there a pattern or practice of violations, the government can sue to recover a penalty up to $25,000.

Complaints can be filed with the state of New York, which can also assist individuals in navigating civil lawsuits.

Source: Freelance Isn’t Free Act – DCA