United States: Independent Contractor Or Employee?

What Employers Can Learn From Uber's Recent Settlements
Last Updated: October 6 2016
Article by Robyn E. Frick

 By now, most employers are aware that misclassifying employees as independent contractors to reduce operating expenses is a bad idea. While not having to pay income taxes, Social Security, Medicare, workers' compensation and other costs for workers may seem attractive at first, the potential consequences of misclassifying employees as independent contractors can be devastating— obligating the employer to pay for unpaid wages, meal and rest breaks, and business expenses, in addition to hefty statutory fines. Sometimes, however, whether a worker should be classified as an employee or independent contractor is not entirely clear, especially given the rise of the gig economy. In hope of greater guidance, many people have closely followed the string of legal challenges that have plagued Uber Technologies Inc.'s ("Uber") practice of classifying its drivers as independent contractors rather than employees. Those of us observing the battle from the side line will have to wait for a clear determination, however, because Uber recently settled two class actions brought by California and Massachusetts' drivers claiming that Uber misclassified them as independent contractors rather than employees. Yet, employers can still glean several important tips from examining Uber's suits and settlements.

The Nature of the Lawsuits and Terms of Settlement

In the two suits Uber recently settled, O'Connor et al. v. Uber Technologies, Inc., et al. and Hakan Yucesoy v. Uber Technologies Inc., et al., 385,000 California and Massachusetts drivers accused Uber of misclassifying them as independent contractors, and sought reimbursement for expenses (such as gas and car maintenance), and compensation for denying them tips (by telling passengers gratuity is included even though tips are not paid to drivers).

Whether the drivers or Uber would have prevailed depends on a variety of factors, bearing in mind that in California, Uber as the employer bears the burden of establishing the drivers are independent contractors rather than employees. (See, e.g. S.G. Borello & Sons, Inc. v. Dept. of Industrial Relations (1989) 48 Cal.3d 341, 349.) The "most significant" primary factor in determining whether the drivers are independent contractors or employees is whether the putative employer—Uber—has the "right to control work details", meaning the "manner and means of accomplishing the result desired." (Id. at 350.) While the right of control need not extend to every possible detail of the work, the relevant question is whether Uber retains "all necessary control" over the driver's performance. (Id. at 357, emphasis in original; see also Air Couriers Internat. v. Employment Development Depart. (2007) 150 Cal.App.4th 923, 934 [explaining that "the fact that a certain amount of freedom is allowed or is inherent in the nature of the work involved" does not preclude a finding of employee status].) Additional factors, often referred to as "secondary indicia", that are also relevant to the determination include:

(a) whether the person performing service is engaged in an occupation or business distinct from that of the principal; (b) whether the work is a part of the regular business of the principal; (c) whether the principal or the agent supplies the instrumentalities, tools, and place of work; (d) the alleged employee's investment in the equipment or materials required; (e) the skill required in the particular occupation; (f) the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision; (g) the alleged employee's opportunity for profit or loss depending on his managerial skill; (h) the length of time for which the service is to be performed; (i) the degree of permanence of the relationship; (j) the method of payment, whether by time or by the job; and (k) whether the parties believe they are creating an employer-employee relationship.

(Borello, 48 Cal.3d at 351.)

As no one factor is dispositive when analyzing the employee/independent contractor analysis, Uber and the drivers each contended their respective position was proper. For instance, Uber argued that the "right to control" factor was not met because drivers can work as much or as little as they want, they never have to accept any "leads" for rides generated by Uber, and the drivers can control how they give the rides they do accept. (O'Connor et al. v. Uber Technologies, Inc., et al., (N.D. Cal. March 11, 2015) 82 F.Supp.3d 1133, 1149, Order Denying Defendant Uber Technologies, Inc.'s Motion for Summary Judgment.) In addition to arguing it was a "technology company" that only generates "leads" for its "transportation providers" (the drivers) through software, Uber also argued that the fact that Uber does not own or supply the cars weighed in favor of its independent contractor classification. (Id. at 1137-1138.)

On the other hand, the drivers contended the control factor was met, because among other things, the Uber Driver Handbook stated that Uber expects on-duty drivers to accept all ride requests, instructs drivers to dress professionally, and send text messages to passengers when they are one to two minutes from the pickup location. (Id. at 1149.) Further, drivers who do not perform up to Uber's standards, or those who reject too many trips, could lead to termination from Uber's service. (Id. at 1143.)

While additional arguments also supported and negated the parties' respective positions, both sides had significant skin in the game, as legal fees were mounting, appeals were pending, and the not-so distant June trial date was looming on the lead case. With this background, in mid-April, the parties reached a settlement, which is still subject to court approval. If approved, the settlement requires Uber to initially pay $84 million to drivers, with another $16 million contingent on Uber going public and meeting certain performance criteria afterward. Uber must also make clear that tips are not included in the fares, and allow drivers to put cards in their cars notifying riders that although tips are not included or required, they would be appreciated. (See Plaintiffs' Notice of Motion and Motion for Preliminary Approval of settlement in O'Connor et al. v. Uber Technologies, Inc., et al., (N.D. Cal. ), Case No. CV 13-03826-EMC, filed April 21, 2016 at pp. 5-11.) Uber also agreed to provide drivers with more information about their individual ratings, introduce a policy explaining the circumstances under which drivers could be deactivated from the service, and create a drivers' association comprised of elected driver leaders that will meet quarterly with Uber to express drivers' concerns. (Ibid.) In return, Uber is able to continue classifying the drivers in these lawsuits as independent contractors.

Effect of the Settlement

Many commentators have criticized the settlement because it leaves open the independent contractor/employee determination not only for Uber and its drivers, but for other companies similarly operating in the sharing space or gig economy, such as Postmates (an on-demand delivery service) or Task Rabbit (assists consumers with everyday tasks like cleaning, moving and delivery). Indeed, in response to discussion about the settlement, the drivers' counsel maintains that the settlement does not endorse Uber's classification of drivers as independent contractors, and only settles these two cases which involved drivers in California and Massachusetts (in employee-friendly legal forums). Thus, whether the determination is correct will have to wait until another day.

Further, several other cases are pending in other jurisdictions that also challenge Uber's business model and employment practices. How the other jurisdictions will determine the issue also remains unknown, as different jurisdictions apply different rubric to determine the classification issue. Several states, including New York, Texas and Georgia have held in favor of Uber's classification practices, and other states, including Ohio and Florida are working on regulations governing Uber and other ride services that would designate drivers as independent contractors.

Given the various factors that can affect the classification determination, the jurisdictional differences, and the practical reality that legislation has not necessarily kept pace with changes in technology, the threat of misclassification becomes even more pressing for employers.

Practical Solutions for the Future

What is an employer to do amidst all of this uncertainty? Understanding the basic differences between independent contractors and employees is the first crucial step in light of the debilitating penalties and liability a company could face for misclassification. Employers should be careful about classifying workers as independent contractors even in instances where the worker prefers an independent contractor classification. For example, despite the fact that Uber reportedly submitted declarations of hundreds of drivers supporting Uber's independent contractor business model, this was not sufficient to convince the O'Connor Court that Uber's classification was proper as a matter of law. (See also, Borello, 48 Cal.3d at 340, rejecting notion that labels placed by parties on their relationship is dispositive). Thus, attempts to contract around the employee classification are problematic and often improper. (See Alexander v. FedEx Ground Package System, Inc., 765 F.3d 981 (9th Cir. 2014) [ruling independent contractor agreements between FedEx and its deliver drivers were not dispositive and drivers were employees as matter of law].) Indeed, the enforceability of Uber's arbitration agreements was on appeal with the Ninth Circuit following an adverse ruling in the lower court when the settlement was reached.

Given the complexity of classification, consulting with an attorney is always a good practice to maintain compliance with continually evolving laws. If employers are concerned about their continued profitability, counsel may be able to suggest some creative approaches, such as outsourcing the job function. Keep in mind, however, that each situation must be evaluated on a case-by-case basis.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions