Are Uber Drivers Independent Contractors or Employees?

A car used with Uber displays the old company logo.

Across the globe, Uber faces many legal challenges to its business model that brings drivers onto its network as independent contractors, rather than employees. In October, a British labor commission ruled that Uber drivers were employees. And in Late November 2016, a European Union court heard similar arguments. One of the original large labor cases against Uber was filed in California. These cases threaten to cripple Uber’s operations which rely on low overhead.

What is Uber’s business model? Technology network or a transportation system?

Uber claims that it’s a technology company, running phone apps that connect passengers to drivers. Most importantly, Uber asserts that the drivers are independent contractors, not employees.

Using drivers as independent contractors allows Uber to do many things to save money, shifting costs to its drivers. Uber can:

  • Ignore existing taxi and ride-for-hire laws and regulations
  • Ignore local taxes on rides-for-hire
  • Avoid paying workers’ (accident) compensation insurance fees
  • Avoid paying social security taxes on driver’s behalf
  • Avoid corporate taxes by shifting revenues through companies in several countries, paying taxes on relatively small royalties
  • Avoid labor laws (usually at the state level in the USA), which include minimum wage, overtime pay, guaranteed break and meal times.
  • Avoid worker protections against discrimination and retaliation.

I want to look back at what the California judge, Edward J. Chen, wrote back in March 2016, in the case O’Conner v. Uber Techn226 Cal. App. 3d at 1292-1294

During the case, Uber’s lawyers asked for a summary judgement, which is their assertion that the case against Uber has no merit. If the judge agrees, the case is dismissed before trial.

Judge Edward M. Chen did not agree, denying Uber’s motion in an eloquent and forceful judgement. Soon after, Uber announced a proposed $80-100 million settlement of the O’Conner case. The settlement merged this California case together with a similar case filed in Massachusetts (Yucesoy, et al., v. Uber Technologies, Inc., et al.). (The settlement ballooned if Uber went public and reached a specified market valuation.)

The settlement was later denied by Judge Chen, a decision I support, because, while a winning lotto ticket for the plaintiff’s lawyer, it provided little for the drivers.

In the denial of a preliminary judgement, Judge Chen found that the question of independent contractor status didn’t pass two tests.

  1. Drivers provide a service to Uber, which is a technologically sophisticated transportation company, but a transportation company nonetheless.
  2. The Borello test, named for the case S.G. Borello & Sons, Inc. v. Dep’t of Indust. Relations, 48 Cal. 3d 341, 350 (1989), yields ambiguous results. The many factored test has elements that point to each side of the case, thus lending itself to trial.

Judge Chen’s consideration of the first test–whether the drivers perform a service to a transportation company, yields many great quotes.

Ironically, Uber takes Yellow Taxi’s position

Uber, the great disruptor of taxis, looks more like a cab company everyday. In the O’Connor case Uber takes a position similar to Yellow Taxi in a 1991 California case, Yellow Cab Cooperative, Inc., et al., v. Workers’ Compensation Appeals Board and Richard Edwinson (226 Cal. App. 3d at 1292-1294).

Yellow Cab Cooperative, Inc., employed its drivers, who were represented by a union. In 1976, the company filed bankruptcy. In 1979, it instituted a new business plan, under which the drivers, now considered by Yellow to be independent contractors, leased cabs from the co-op.

When driver Edwinson had an on-the-job injury, he brought his case to the Workers’ Compensation Appeals Board, arguing that he was an employee, and thus entitled to employer-paid insurance through the state of California. The Board agreed; Yellow appealed; and Yellow lost the appeal.

The obvious difference between Yellow Cab and Uber is the ownership of capital. Yellow owned the cabs, earning money from leasing them to the driver. Uber has little capital investment, because the drivers use their own cars.

But Judge Chen stressed the similarities in the the cab company’s operations and Uber’s.

Drawing on the Yellow Cab ruling Judge Chen writes,

“… The Court of Appeal flatly rejected Yellow’s argument that the drivers did not provide it a service, finding that Yellow’s actual ‘enterprise consists of operating a fleet of cabs for public carriage. The drivers, as active instruments of that enterprise, provide an indispensable “service” to Yellow; the enterprise could no more survive without them than it could without working cabs.’

“The reasoning of Yellow Cab Cooperative applies even more forcefully here. Unlike Yellow Cab, which received a flat fee and did not share in its drivers’ fares, Uber only receives its fees if a driver successfully transports an Uber ‘lead’ to some destination. Moreover, the precise amount of this fee is set by Uber, without negotiation or input from the drivers. Under such circumstances, it strains credulity to argue that Uber is not a ‘transportation company’ or otherwise is not in the transportation business; it strains credulity even further to argue that Uber drivers do not provide Uber a valuable service. Like the cab drivers in Yellow Cab Cooperative, Uber’s drivers provide an ‘indispensable service’ to Uber, and the firm ‘could no more survive without them’ than it could without a working smartphone app. Or, put more colloquially, Uber could not be ‘Everyone’s Private Driver’ without the drivers.

“[Plantiffs/Drivers] note that while Uber now disclaims that it is a ‘transportation company,’ Uber has previously referred to itself as an ‘On-Demand Car Service,’ and goes by the tagline ‘Everyone’s Private Driver.’ Indeed, in commenting on Uber’s planned expansion into overseas markets, its CEO wrote on Uber’s official blog: ‘We are “Everyone’s Private Driver.” We are Uber and we’re rolling out a transportation system in a city near you.’ (emphasis added [by judge]). Other Uber documents state that ‘Uber provides the best transportation service in San Francisco . . . .’”

In other areas of the ruling Judge Chen sought to stress the technological nature of Uber’s business, while emphasizing that at its core, the company provides rides.

“Uber’s revenues do not depend on the distribution of its software, but on the generation of rides by its drivers.”

“Put simply, the contracts confirm that Uber only makes money if its drivers actually transport passengers.”

Finally, in the most elaborate analogy of the ruling Judge Chen makes clear that technology is ubiquitous. Technology alone does not define most companies.

“Uber does not simply sell software; it sells rides.

Uber is no more a ‘technology company’ than

  • Yellow Cab is a ‘technology company’ because it uses CB radios to dispatch taxi cabs,
  • John Deere is a ‘technology company’ because it uses computers and robots to manufacture lawn mowers,
  • or Domino Sugar is a ‘technology company’ because it uses modern irrigation techniques to grow its sugar cane.

Indeed, very few (if any) firms are not technology companies if one focuses solely on how they create or distribute their products. If, however, the focus is on the substance of what the firm actually does (e.g., sells cab rides, lawn mowers, or sugar), it is clear that Uber is most certainly a transportation company, albeit a technologically sophisticated one [formatting and emphasis mine].”

Given this evocative language, it’s not surprising that Uber moved to settle the lawsuit.

6 thoughts on “Are Uber Drivers Independent Contractors or Employees?

  1. Uber is now providing rented and leased vehicle to their drivers and making money off of that. In addition, they have put rules in place making it more difficult to use their own vehicles.

  2. Independent Contractor or Employee communication?

    Date: June 21, 2017 at 7:07:26 PM GMT+2
    Subject: Cancellations affect everyone

    Account update

    What happens when you cancel rides

    You’ve recently been cancelling a lot of trips after accepting them.
    If you cancel a trip after you’ve accepted, the request goes to another driver who may be farther away from the pickup point.
    Uber is a better experience for everyone when riders don’t have to wait too long for a pickup and drivers don’t have to drive far away for a request.
    If your cancellation rate remains consistently high, your driver account may be at risk of deactivation. To lower your rate, instead of cancelling, go offline whenever you want to stop taking trips.

  3. Date: June 16, 2017 at 6:29:53 AM PDT
    To: Lyft Drive Team
    Subject: Re: Important update about your driver account

    I have the right to refuse a ride. If I don’t feel comfortable or safe picking up someone, then I’m not picking them up. You have the nerve to lock my account… Reports/Incidents of drivers being killed by passengers. I do what I have you do to keep myself safe. Your not in the car with me and you don’t know why I canceled the rides. You can continue your tactics, but if don’t feel safe picking someone up, then I’m not picking them up (I will continue as necessary). Thx

    Sent from yours truly…

    On Jun 15, 2017, at 1:29 PM, Lyft Drive Team wrote:

    Account Update

    Passengers rely on drivers to provide a dependable service, and it’s important that you’re there for them. We’ve reached out to you several times about quitting the Lyft app or switching to airplane mode to avoid ride requests. When you avoid passenger requests, you hurt your acceptance rate, which is an important part of incentives like Power Driver Bonus and Rental Rewards. If this problem continues, you’ll affect our ability to keep the platform running smoothly.

    It’s best for the community when you accept the ride requests you receive, or simply log out of driver mode if you need a break. Learn more about how acceptance rates work.

    The Lyft Team

    • Hey David,
      Thanks for posting these interactions with Lyft. It’s key to remember the difference between acceptance rate and cancellation rate. You can’t be removed from the platform for a low acceptance rate (but it will definitely affect your power driver bonus eligibility). You can be ‘fired’ for a high cancellation rate.
      Try the airplane mode trick. If a ride comes in that you don’t want, don’t accept and then cancel. Don’t ignore, but put your phone in airplane mode disconnects the data service. This should allow you to avoid rides without negatively affecting your cancellation and acceptance rates.

    Friday, June 16, 2017 at 8:13:43 PM · uberX

    Thank you for taking the time to write to us.

    I do understand your concerns. Please know that maintaining a low cancellation rate as a driver ensures that you are making the most out of your time online with the Uber app. Cancellations also create a poor rider experience and negatively affect other drivers. We understand that there may be times when something comes up that causes a driver to cancel an accepted trip, but minimizing cancellations is critical for the reliability of the system.

    Nonetheless, feedback like yours helps us to understand where the app fails and gives us the opportunity to correct and even improve various features, creating a better experience for both riders and partners using this platform.
    Thank you again for your feedback. If there is anything else, please let me know.

    Sent by Stephanie D. on Sunday, June 18, 2017 at 9:58:57 PM
    Continue this conversation by replying to this email or going to help in your Uber app.
    Share Details: Responding to your e-mail About cancellations, since I don’t know where else to send this… I have the right to refuse a ride as a driver. If I don’t feel comfortable or safe picking up someone, then I’m not picking them up. When I can’t meet the ride incentive goals for the week (because you are not busy enough and the roads are over saturated with drivers), I have to switch to doing only regular Uber x rides to make money to support myself. I had the app on one day last week and didn’t get a request in 30min. Frankly, that is ridiculous amount of time to wait in the busy areas like the financial district. Uberpools don’t pay anything worth my time. I do them it’s busy and I can realistically hit the incentive goals for the week. I have to cancel sometimes. Honestly, I don’t cancel that much on anyone, unless I have to. Also there have been Reports/Incidents of drivers being killed by passengers. I do what I have you do to keep myself safe. Your not in the car with me and you don’t know why I canceled the rides. You can send messages about cancellations policies all day, but if don’t feel safe picking someone up, then I’m not picking them up (I will continue as necessary to keep myself safe). Thx

    • Hey David,
      Thanks for sharing this correspondence with Uber. Drivers should have the right to cancel for safety concerns. I would be frustrated, too, with the canned responses from Uber Support.
      Do you typically drive UberBLACK, or UberSELECT?

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