The “gig economy,” also known as the “sharing economy,” has made significant changes to many aspects of the job market. Many of those changes are good. For example, a person who drives for a rideshare company like Uber or Lyft can enjoy a measure of flexibility not found in the traditional workplace. They can decide when to work and for how long.
One downside, however, is that employment laws only protect employees, not independent contractors. Because most ridesharing services consider their drivers to be independent contractors, those workers usually aren't entitled to the minimum wage, overtime pay, or other employment protections.
In recent years, the rideshare company Uber has been in the news because of legal disputes with drivers who argue that they should be considered employees, not independent contractors.
The legal definitions of "employee" and "independent contractor" vary from one state to the next, so a contractor in one state might be an employee somewhere else.
If Uber drivers are employees, Uber would have certain responsibilities to them under federal and state employment laws. These include laws that address issues like the minimum wage, overtime compensation, employment discrimination, sexual harassment, and the right to unionize.
If Uber drivers are independent contractors, as Uber generally contends, then the only law that would apply would be the law of contracts. The company’s responsibilities are limited to the terms of the contracts with each driver.
The main issue in determining whether someone is an employee or an independent contractor is the amount of control that the employer can exercise over the person in the course of the job.
If an employer can direct the person to be in a particular place for a particular period of time, such as at their desk in the employer’s office from 9 a.m. to 5 p.m., that would probably weigh in favor of the person being an employee.
If the individual works on their own schedule, without direct supervision from the employer, that might look more like an independent contractor situation.
Here is a rundown of the most recent legal developments in this area, though these rulings are hardly the last word on this topic.
In 2019, the California Legislature passed a law, Assembly Bill 5, that significantly altered the rules employers use to determine whether workers are employees or independent contractors. Under the law, effective January 1, 2020, only workers who meet all three requirements of a "pro-worker" ABC test (discussed in the next section) will qualify as independent contractors for California employment law purposes.
Mostâ if not allâ workers who obtain temporary work through online hiring platforms such as Uber will not qualify as independent contractors under the new test.
Uber has pledged to fight the law in court or spearhead an initiative petition to overturn it.
In 2018, the Supreme Court of California issued a decision, Dynamex Operations West, Inc. v. Superior Court, that is likely to affect Uber and other rideshare companies (4 Cal. 5th 903). The court adopted a three-part test, known as the “ABC test,” for identifying when a person is an independent contractor rather than an employee. The test strongly favors treating people as employees.
Under the ABC test, a person is considered an employee by default, unless the employer can establish three elements:
Uber operates all over the country and internationally, but it is headquartered in California. The Dynamex decision is likely to affect the company at some point. Many other states have also adopted the ABC test.
In June 2015, the California Labor Commissioner issued a ruling in Berwick v. Uber Technologies, Inc. in favor of an Uber driver who had filed a complaint for unpaid wages. The decision predated Dynamex, and so was based on an earlier California Supreme Court decision with a more complicated test. Just like with the ABC test, however, Uber had the burden of proving that the driver was an independent contractor.
The Commissioner found that Uber “retained all necessary control” over how the driver did their job. The Commissioner’s order noted that Uber “control[s] the tools the drivers use,” such as by requiring drivers to register their vehicles with the company, requiring those vehicles to meet the company’s minimum standards, and exercising total control over fees charged to customers and paid to drivers.
For the purpose of state wage law, the Commissioner found that the claimant was an employee. This ruling was not binding, however, on any other driver in the state. Some subsequent court decisions made similar findings, while others reached different conclusions.
The federal National Labor Relations Act (NLRA) protects the right of employees to organize for the purpose of collective bargaining, such as joining or forming a labor union. It prohibits employers from interfering with employees who are exercising these rights. The statute created the National Labor Relations Board (NLRB) to investigate claims of violations by employers, and to adjudicate alleged violations.
The NLRB’s General Counsel issued a memorandum in April 2019 recommending the dismissal of three cases alleging NLRA violations by Uber. The memorandum concluded that the Uber drivers who filed the complaints were independent contractors, not employees, based on the “common-law agency test” that the NLRB has adopted. This test consists of “ten nonexhaustive common-law factors,” including variations on the three elements of the ABC test.
Unlike the California Labor Commissioner’s conclusion in Berwick, the NLRB General Counsel found that Uber offers its drivers “significant opportunities for economic gain and, ultimately, entrepreneurial independence.” It noted that drivers had “no upper limit” for how much work they could accept, and a minimum requirement of only one ride per month. Drivers could control where and when they worked, and could stop working at any moment while not on an assignment. The General Counsel also noted that drivers could, and often did, work for multiple competing rideshare companies.
If you perform work in the gig economy, particularly in California, your employer might be misclassifying you as an independent contractor. If that's the case, you might be entitled to greater legal protections and even higher wages. Because the employee versus independent contractor determination is made on a state-by-state basis, you should consider contacting an employment lawyer in your area to discuss your legal options.
