United States: Uber Court Victory A Win For Sharing Economy Companies Everywhere

A California court quietly granted ride-sharing giant Uber a significant victory last week in the ongoing misclassification battle over whether its drivers are properly classified as independent contractors. Although this ruling received scant attention due to the procedural quirks surrounding the decision, its significance cannot be overstated. Sharing economy companies everywhere could – and should – cite this ruling if their classification structures are challenged by plaintiffs' attorneys or government agencies, but should also proactively apply the lessons taught by this case to reduce the chances of being caught in a misclassification trap to begin with.

Uber's Classification Structure Offers Maximum Flexibility

Unless you have been living under a rock for the past five years, you are probably familiar with the ride-sharing model offered by Uber and its competitors. Individuals sign up as drivers and are connected with passengers needing a ride. The drivers are classified as independent contractors because of the lack of control levied by Uber; indeed, the drivers own their own cars, choose when and when not to work, and have few of the trappings usually associated with the employee-employer relationship.

That has not stopped drivers from bringing lawsuits against the ride-sharing company seeking to be classified as employees. We have extensively covered the major milestones in the most significant of these lawsuits, from the initial $100 million agreement that appeared to resolve a massive class action case in April 2016, to the rejection of that settlement by a federal court judge in August 2016 who believed the resolution was not adequate, to the 9th Circuit ruling in September 2016 handing Uber a significant victory by upholding the company's arbitration agreements.

In early February 2017, the company received some good news when a Florida state appellate court ruled that drivers are independent contractors, not employees, and therefore not entitled to unemployment compensation benefits when their working relationship with the ride service terminates. However, the news had not been so good in California, where a 2015 court decision determined that drivers were employees entitled to certain benefits. The tide may have started to turn, however, with a February 21, 2017 ruling from the Los Angeles County Superior Court in a case that started with a hug between a driver and his passenger.

Driver Deactivated Due To Sexual Harassment Allegations Sought Employee Status

Yosef Eisenberg was an Uber driver with a rollercoaster relationship with the company. He claims to have been deactivated from the ride-sharing service "more times than I can remember," but had always been invited to return after taking quality improvement courses to regain access to the Uber platform. Most of these deactivations were due to low rider ratings. However, at least once he was cut from the system for charging a customer a greater amount that he should have.

Eisenberg's biggest troubles, however, stemmed from his alleged inappropriate contact with customers. On one occasion, he was deactivated after asking riders for their telephone numbers, even though the company instructs drivers to only contact riders after a trip is completed if a personal item had been left in the car. The last straw occurred in July 2015 when he gave a hug to a female passenger. Eisenberg explained in vain that she was drunk and asked to sit in the front seat next to him. He said she wanted to "hang out with him" and that he only gave her a hug "to diffuse the situation" at the end of the ride. Uber learned of the situation and classified his behavior as sex harassment after an investigation, permanently deactivating his status as a driver.

Eisenberg brought a legal action against Uber in an effort to get his job back and to collect damages; his claim alleged he was an employee of the company and thus entitled to all of the protections and benefits afforded to employees in California. The claim went to an arbitration proceeding in July 2016 pursuant to the mandatory arbitration agreement signed by all drivers.

Uber's Legal Victory Affirmed By State Court

In November 2016, the arbitrator ruled in Uber's favor and rejected Eisenberg's claim in a thorough 50-page written decision. The arbitrator noted that most of the factors present demonstrate that Uber does not maintain the right to control its drivers, and thus has no employer-employee relationship with them. Some of the factors cited by the arbitrator as determinative included:

  • Uber does not provide drivers with an employee manual or handbook.
  • To the extent the company offers training to its drivers, it is modest and brief (focusing on how to use the app itself and offering several customer service tips).
  • Uber requires drivers to provide their own cars.
  • Drivers are responsible for paying for their own vehicle repairs, gas, and liability insurance.
  • The company does not guarantee drivers any number of rides per day.
  • Drivers are not required to provide a minimum amount of time spent online ready to offer rides to passengers.
  • Drivers can offer services to competitors, and in fact can be available for both Uber and any number of competitors at the same time.
  • Uber offers no instructions to drivers on where to drive when they are on the app.
  • Drivers establish their own schedules.
  • There are no required start and stop times for drivers.
  • Uber drivers can take as long as they want for breaks and meals.
  • Uber does not require drivers to request permission to shut down the app and go offline.
  • Drivers have no responsibility to tell Uber when they are going to be off the app.
  • Uber does not supervise its drivers.
  • Drivers do not have to wear any special uniform or signage.
  • Although Uber proposes suggestions to drivers on how to provide the best customer service experience, such as offering complimentary refreshments and cell phone chargers, using the most efficient driving routes, and providing a clean car, these are not mandatory rules.

The combination of all of these factors led the arbitrator to conclude that Uber drivers were properly classified as independent contractors. "The fact, alone, that Uber has an active interest in deactivating certain drivers," he wrote, "does not establish an employer-employment relationship." He concluded by noting that businesses are "permitted to exercise a certain measure of control for a definite and restricted purpose without incurring the responsibilities" of becoming an employer. The question has always been how much control is too much control to tip the scales from contractor to employee status, but in this case, the arbitrator found the scales tipped in Uber's favor.

The arbitrator acknowledged that some factors exist that could arguably constitute a "right to control" between Uber and driver, but discounted them as not being significant enough to warrant a ruling in Eisenberg's favor. He cited, for instance, the fact that drivers must agree to the terms of an online services agreement before they have access to become a driver; Uber sets base or default fares that must be charged to passengers; drivers are discouraged from soliciting tips from passengers; Uber uses passenger ratings to evaluate drivers; and drivers can be deactivated for a variety of offenses (such as sex harassment or other inappropriate behavior, not to mention low passenger ratings).

On February 21, 2017, Los Angeles Superior Court Judge Michael J. Stern granted the arbitration award in favor of Uber, dismissing Eisenberg's claim. The decision did not garner significant attention due to the procedural path that this case needed to take, but that does not lessen its significance. Although Eisenberg might appeal the matter to the court of appeals, this victory was crucial for Uber and could set the tone for future success on the issue in California and elsewhere.

What Should Employers Do?

Any employers concerned about misclassification – including shared economy or "gig" economy businesses – should pay close attention to this ruling and apply the lessons it teaches. Reviewing the factors cited by the arbitrator should assist in establishing preferred practices that will minimize the changes of a misclassification lawsuit and maximize the chances of success should such a lawsuit be filed against your business.

This is a rapidly evolving area of the law, and courts across the country to continue to grapple with complex issues. It is made especially difficult by the fact that courts are left to analyze these 21st century cases using 20th century law.

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.

Authors
Richard R. Meneghello
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.