We look at the distinction between employees and independent contractors in light of the recent cases against "on demand" technology companies.
"Drive" in Litigation
There has been a significant increase in litigation in the US against "on demand" technology companies such as Uber regarding the classification of employees versus independent contractors. These companies have been faced with litigation from drivers who claim to be employees rather than independent contractors. Where a "worker" is classified as an employee, this can have serious repercussions for a company in terms of potential employment claims, not to mention tax penalties on fees paid on a contractor rather than employment basis and so have not properly been subject to payroll tax deductions.
A major international technology company is currently being sued by drivers who deliver its products to its customers within one to two hours of ordering through its customised application. The drivers are claiming that they have been misclassified as independent contractors and are seeking to be reimbursed for their mileage, expenses, overtime and missed meal breaks. In claiming their status as employees, the drivers have alleged that while the application suggests a tip, the drivers are prohibited from accepting cash tips, the drivers receive training, they are required to wear a uniform, they are scheduled to work shifts, they cannot reject work assignments or request particular geographical areas, they are tracked whilst carrying out deliveries, the application generates routes and directions that they are to follow, the fees the drivers receive are determined by the company and they are required to use their own vehicles without reimbursement by the company.
A similar proposed class action has been filed against another technology giant in respect of its same day delivery service, by one of its drivers alleging it improperly classified her as an independent contractor and is claiming expenses. The driver claims that she was hired by an intermediary courier service but is required to work only for the technology company during her shift, she is required to wear a uniform and to accept every delivery assigned to her during each shift.
There are additional similar cases being pursued in the US against other on demand companies.
A ruling against Uber in June 2015 by the California Labor Commissioner's Office ("LCO") has spurred on a number of class actions against Uber in the US. In that case, Barbara Ann Berwick brought a claim against Uber for wages and expenses for the eight weeks she worked as an Uber driver. We outline below some interesting take-home points from the case, which should be of use to any company engaging contractors.
Relevance of Work to Company Business
There is case law in California to suggest that if a "worker" is performing work for a company which is not distinct from that Company's business, this is a strong indication that an employment relationship exists. Uber therefore attempted to argue that it was merely a technological platform that private vehicle drivers and passengers use to facilitate private transactions rather than a driving service. This argument was rejected by the LCO, on the basis that the reality of Uber's business model was to provide transportation to passengers and that drivers are therefore an integral part of its business.
The LCO held that, in order for a "worker" to be found to be an employee, the company need not be exercising "complete control" over the worker's activity, but must merely exercise "necessary control over the operation as a whole".
The LCO listed a number of factors in finding that Ms Berwick was an employee, including:
- Uber controls the tools the drivers use, for example, drivers must register their cars with Uber;
- Uber monitors driver approval ratings and terminates their access to the app if the rating falls below a specific level;
- Passengers pay Uber a set price for the trip and Uber in turn pay their drivers a non-negotiable service fee;
- If a passenger cancels a trip request after the driver has accepted it, and the driver has appeared at the pick-up location, the driver is not guaranteed a cancellation fee. Uber alone has the discretion to negotiate this fee with the passenger;
- Uber discourages drivers from accepting tips because it would be counterproductive to Uber's advertising and marketing strategy; and
- Uber provided the iPhone app which was essential to the work. But for Uber's intellectual property, the drivers are not able to perform the work.
These factors, in our view, are consistent with Irish Revenue guidance in this area. However, the LCO also alluded to the following factors which are somewhat inconsistent with the Irish position:
- Uber vet prospective drivers, who must provide their banking, residence information, and social security number to Uber. This factor is not specifically referenced in Irish Revenue guidance;
- Uber permits drivers to hire its own staff. This factor is more akin to a contractor relationship in Ireland and would carry significant weight in an Irish analysis. However, the LCO was swayed by the fact that no one other than Uber approved drivers may use Uber's intellectual property; and
- In this case, Ms Berwick provided her own car and was responsible for her labour costs. These factors, again are more akin to a contractor relationship under the Irish guidance. However, the LCO held that she did not have the 'managerial skills' which could affect her profit or loss and that, aside from her car, she had no investment in the business.
While decisions of the US courts generally have limited persuasive authority before the Irish courts, it is interesting to note the Californian position, and particularly the fact that the test for claiming employee status there appears to be a lower threshold than in Ireland. Uber is currently appealing the decision in the Berwick case and therefore this is certainly one to watch.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.