A ballyhooed decision by the California Labor Commission to call an Uber driver an employee has reverberated across the US workplace ahead of the expected release of new Labor Dept. guidelines on how to define an independent contractor.
The commission’s ruling earlier this month applied only to the former worker who brought the claim and was promptly appealed by the global ride-sharing company. But it raised expectations that a pending class action in state Superior Court could swing in the direction of other Uber drivers seeking employee status and the wages and benefits that go with it.
Such a finding, while applying just to drivers for the company in California, “could force Uber to take a much closer look at its business model,” said Monique Olivier, partner at Duckworth Peters Lebowitz Olivier in San Francisco.
“It will make it harder for companies like Uber to argue that these workers are freelancers,” she said, adding that many emerging industries using new technologies share the hallmarks of employer status.
One of the factors identified by the Internal Revenue Service as signifying freelancer or independent contractor status is the ability to say ‘no’ to an assignment, Olivier said. Uber drivers say the company’s “performance metrics” dictate the number of refusals that lead to “deactivation,” she added.
Uber responded in a written statement that if a driver consistently cancels or refuses rides, he or she will generally receive a warning and in some cases may be taken off of the platform.
Olivier, who 15 years ago worked on cases determining whether taxi and other kinds of drivers were employees, told Advisen that the issue is not new.
What makes Uber compelling is that the company has “attempted to transform the transportation industry, bringing car service and ride-sharing to the masses,” she said. “Their reach is greater and so is the demand for drivers. The ultimate decision as to whether they are employees, though, is the same.”
Uber said, “the number one reason drivers choose to use Uber is because they have complete flexibility and control. The majority of them can and do choose to earn their living from multiple sources, including other ride sharing companies.”
The most recent ruling by state labor commission has gotten the attention of EPLI brokers, too, especially in light of upcoming changes to guidelines for determining whether a worker is an independent contractor—and by the fall, a widely anticipated overhaul of the 1938 Fair Labor Standards Act, particularly regarding eligibility rules for overtime pay.
The government right now is “feeling like the workplace is underpaid,” said Thomas Hams, national practice leader for employment practices liability at Aon Risk Solutions.
After the new guidance and rules under existing wage and hour laws are handed down, “the likelihood of litigation will increase. With a sweep of the pen, employers will be learning to comply” again, he said. “But they’ve gotten good at it. State laws have continued to change all along–California is constantly tweaking meal and break periods.”
Coverages for the gap between what an “employee” has been paid and the minimum wage, or overtime and expenses, such as contributions for social security, that are owed, are included in the broker’s three-year-old W&H policy.
Such policies insure the corporation rather than individuals, meaning that intentional acts by a manager in the field, for example, are covered, depending on the specific contract.
But while recent Supreme Court rulings have raised the bar for class certification in cases of discrimination, harassment and wrongful termination, volatility has come to the wage and hour arena, Hams said.
Greater loss severity and less frequency can be seen in W&H cases involving misclassification of employees in regard to exemption from overtime pay, but there is “more churn around things like failure to give meal breaks” or to pay for unused vacation time promptly, Hams told Advisen.
Cases like Uber and upcoming revisions to wage and hour laws are likely to spur client interest in the broker’s new standalone or blended W&H/EPL coverage.
“Will the changes make clients nervous again and help our product?” he said. “It’s like cyber insurance, another relatively new product. All the news about data breaches makes it sell like hot cakes.”
The country’s wage and hour laws, conceived when manufacturing jobs predominated, have been an awkward fit for IT and other jobs that allow people to work remotely and that form “a springboard for calling employees independent contractors,” said Bennett Pine, shareholder at Anderson Kill.
The IRS guidelines, which most state agencies track in determining whether a worker is an employee, center on who controls the means and methods of production.
“It’s not the title, but the duties,” Pine told Advisen. “The IRS and Dept. of Labor are cracking down on employers seeking to avoid tax obligations by labeling employees as independent contractors. There has been a growth in businesses doing this” over the past decade.
But beyond misclassifying workers as independent contractors, there is the issue of misrepresentation, according to Olivier.
When companies call a worker independent or ask them to sign a contract stating that they are, it can “have a chilling effect,” she said. Workers believe it or think that, because they agreed, they don’t have the rights to which they are entitled to by dint of what it is they actually do—and they don’t pursue them.
“They will tell you, ‘I’m an independent contractor, but I have a boss,’” Olivier said.
