Judges say labor laws outdated to deal with sharing economy firms
New laws might be needed to provide courts better guidance on how to classify the employment status of drivers for transportation network companies, and indeed, other services offered through the burgeoning “sharing economy,” according to a pair of federal judges in rulings handed down this week in two separate cases before the U.S. District Court for Northern California.
The immediate effect of the rulings by Judges Vince Chhabria and Edward M. Chen was to deny motions for summary judgment in putative class actions brought by current and former drivers of Lyft and Uber, respectively. The drivers claim they were misclassified as “independent contractors” when, they believe, they should have been considered employees under California law. Rulings for the drivers could bring stiff penalties, as well as a likely reassessment of the TNCs’ business models.
In both rulings, the judges expressed that the combination of factual and legal issues under dispute would best be heard by a jury. While contracts signed by the drivers of both services stipulate that services would be rendered under an independent contractor model and that no employer-employee relationship was created, California labor law is among the most stringent in the country on these questions. Under the law, there is a presumed employer-employee relationship whenever services are rendered for compensation, and the burden is on the putative employer to prove the putative employee was instead a contractor.
The tests to establish that relationship were primarily laid down by the California Supreme Court in 1989’s S.G. Borello & Sons Inc. v. Department of Industrial Relations. That case affirmed that the most important question to settle is the degree of control the alleged employer has over the work performed by the employee or contractor. The ruling also set out a host of “secondary” factors to consider, including how the alleged employee is paid and whether he or she has a highly defined skill set.
But the tests don’t actually amount to a checklist. Instead, courts and juries are supposed to consider the evidence as a constructive whole. The end result is that, long before the rise of app-based “peer production” services, the waters were already somewhat murky. Often, factors considered significant in some cases (wearing a uniform, setting one’s own hours, using one’s own tools or vehicles) fail to lead to similar judgments in other cases.
If divining the difference between an employee and a contractor was difficult before, these new services make it close to impossible. Both judges attested to the challenges a jury will face in weighing the claims against Uber and Lyft. In an extended introductory section to his ruling, Chhabria wrote:
At first glance, Lyft drivers don’t seem much like employees. We generally understand an employee to be someone who works under the direction of a supervisor, for an extended or indefinite period of time, with fairly regular hours, receiving most or all his income from that one employer (or perhaps two employers). Lyft drivers can work as little or as much as they want, and can schedule their driving around their other activities. A person might treat driving for Lyft as a side activity, to be fit into his schedule when time permits and when he needs a little extra income.
But Lyft drivers don’t seem much like independent contractors either. We generally understand an independent contractor to be someone with a special skill (and with the bargaining power to negotiate a rate for the use of that skill), who serves multiple clients, performing discrete tasks for limited periods, while exercising great discretion over the way the work is actually done. Traditionally, an independent contractor is someone a principal might have found in the Yellow Pages to perform a task that the principal or the principal’s own employees were unable to perform—often something tangential to the day-to-day operations of the principal’s business… Lyft drivers use no special skill when they give rides. Their work is central, not tangential, to Lyft’s business. Lyft might not control when the drivers work, but it has a great deal of power over how they actually do their work, including the power to fire them if they don’t meet Lyft’s specifications about how to give rides. And some Lyft drivers no doubt treat their work as a full-time job—their livelihood may depend solely or primarily on weekly payments from Lyft, even while they lack any power to negotiate their rate of pay. Indeed, this type of Lyft driver—the driver who gives “Lyfts” 50 hours a week and relies on the income to feed his family—looks very much like the kind of worker the California Legislature has always intended to protect as an “employee.”
On the whole, Chen’s ruling is perhaps somewhat less receptive to Uber’s arguments than even Chhabria’s was to Lyft’s. (Chen denied Uber’s request for summary judgment, while in the Lyft case, it was the plaintiffs who sought summary judgment.) In their pleadings, Uber went to great lengths to separate the conditions under which their drivers operate from the facts in last year’s Alexander v. FedEx Ground Package Systems Inc., in which the Ninth Circuit ultimately concluded that FedEx drivers could not be considered independent contractors. In the Alexander case, Uber noted, drivers were subject to quarterly “ride-alongs” with FedEx management, who scrutinize how they conduct their work. By contrast, the company said, Uber drivers are never subject to similar inspections.
But Chen pointed to Uber’s user rating system as arguably giving the company an even MORE extensive means of monitoring, going so far as to cite French philosopher Michel Foucault’s Discipline and Punish: The Birth of the Prison and its assertion that “a state of conscious and permanent visibility assures the automatic functioning of power.”
Nonetheless, Chen concluded that the traditional tests courts use to judge employment status aren’t terribly helpful when applied to Uber’s business model, or to the sharing economy in general.
Arguably, many of the factors in that test appear outmoded in this context. Other factors, which might arguably be reflective of the current economic realities (such as the proportion of revenues generated and shared by the respective parties, their relative bargaining power, and the range of alternatives available to each), are not expressly encompassed by the Borello test. It may be that the legislature or appellate courts may eventually refine or revise that test in the context of the new economy. It is conceivable that the legislature would enact rules particular to the new so-called “sharing economy.”
Or, as Chhabria put it in his conclusion, the jury in this case “will be handed a square peg and asked to choose between two round holes.”
The test the California courts have developed over the 20th Century for classifying workers isn’t very helpful in addressing this 21st Century problem. Some factors point in one direction, some point in the other, and some are ambiguous. Perhaps Lyft drivers who work more than a certain number of hours should be employees while the others should be independent contractors. Or perhaps Lyft drivers should be considered a new category of worker altogether, requiring a different set of protections. But absent legislative intervention, California’s outmoded test for classifying workers will apply in cases like this.
