United States: New York Appellate Court Delivers Big Win To Gig Economy Business

On June 22, New York's Third Department appellate court – which has jurisdiction over all state Unemployment Division appeals – issued a significant decision for "gig" economy companies with operations in New York. In Matter of Vega,1 the court found that a courier who performed delivery services arranged through Postmates' web-based platform was as an independent contractor, and not an employee, for unemployment insurance purposes.

The courier applied for unemployment insurance benefits after Postmates terminated its contractual relationship with him.  An Administrative Law Judge ("ALJ") held that the courier was ineligible for benefits, but the New York Unemployment Insurance Appeal Board (the "Board") reversed, finding that the courier was misclassified as an independent contractor.

In overturning the Board, and finding that the relationship lacked the "indicia of supervision, direction and control necessary to establish an employer-employee relationship," the Third Department highlighted the fact that the courier retained control over whether, when, and for how long he performed delivery services arranged through the platform.  Specifically, the court noted that the courier and "those similarly situated ... unilaterally retain the unfettered discretion as to whether to ever log on to Postmates' platform and actually work," and are "free to work as much or little as [they] want[]," without a "set work schedule," a "minimum time requirement that [they] must remain logged on to the platform, or a "minimum or maximum requirement with respect to the number of deliveries [they] must perform."  In addition, the court found that couriers are free to "accept, reject or ignore a delivery request, without penalty."

The Third Department also pointed to the couriers' freedom in other critical areas, including their right to work with others, including Postmates' competitors, to choose their mode of transportation, and to select the navigational routes they follow when completing deliveries. 

The court noted other indicia of independent contractor status, including that couriers provide and maintain their own transportation, are not required to wear a uniform, are not provided with any identification cards or Postmates logos, are not required to adhere to a stringent delivery schedule, are only paid for the deliveries they complete, are not reimbursed for business expenses, and do not report to a supervisor.

Significantly, citing to the Court of Appeals decision in Matter of Yoga Vida,2 and its own prior decision in Matter of Courto,3 the court found that the proof of "incidental control" allegedly exercised by Postmates – including its role in setting the fee to be charged to customers, determining the rate to be paid to couriers, tracking deliveries, and handling customer complaints – did not constitute substantial evidence of an employment relationship, insofar as it did not "provide sufficient indicia of Postmates' control over the means by which the[] couriers perform their work."

Although independent contractor status determinations are heavily dependent upon the facts of each case, Matter of Vega should provide businesses in New York with additional support to push back against allegations of misclassification from the New York State Department of Labor.  For example, the Department of Labor often places significant weight on a putative employer's role in setting prices for customers and/or collecting payment. The Third Department's decision suggests such things should be viewed – at most – as "incidental control," particularly in cases where workers retain similar rights as the couriers in Matter of Vega.

The decision also represents another victory for gig economy companies defending against claims of independent contractor misclassification.  Further, it lends additional support to the notion that the traditional concept of an employer-employee relationship does not translate to situations in which workers utilize online platforms to generate business, and do so with a high degree of autonomy and flexibility.  Earlier this year, in Lawson v. Grubhub, Inc.,4 prior to the decision issued by the California Supreme Court in Dynamex Operations West, Inc. v. Superior Court of Los Angeles,5 which adopted a modified "ABC" test for determining independent contractor status under California's Industrial Welfare Commission Wage Orders, a magistrate judge in California found that a delivery service provider who sued Grubhub under California state wage and hour laws was properly classified as an independent contractor.  Similarly, in Razak v. Uber Techs., Inc.,6 a district court judge in Pennsylvania granted summary judgment to Uber on the issue of the plaintiff-drivers' independent contractor status under federal and state wage and hour laws.

Footnotes

Matter of Vega , 2018 N.Y. Slip Op. 04610 (3rd Dep't 2018).

Matter of Yoga Vida, 28 N.Y.3d 1013 (Ct. App. 2016).

Matter of Courto, 159 A.D.3d 1240 (3rd Dep't 2018).

Lawson v Grubhub, Inc., 2018 U.S. Dist. LEXIS 21171 (N.D. Cal. Feb. 8, 2018).

Dynamex Operations West, Inc. v. Superior Court of Los Angeles, 4 Cal. 5th 903 (2018).

Razak v.  Uber Techs., Inc., 2018 U.S. Dist. LEXIS 61230 (E.D. Pa. Apr. 11, 2018).

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