I. Introduction
The so-called on demand economy, sharing economy or gig economy is based on digital platforms or apps that act as intermediaries between final customers and service providers.
A few examples on platform intermediation of on-demand work are Uber, Lyft, Cabify and Didi Chuxing, involving non-public transportation of people; Deliveroo, Glovo, Uber Eats, Take It Easy, Pedidos Ya and Meituan Dianping when it comes to food delivery services; Mechanical Turk and Upwork in the areas of occasional online micro-tasks; and Task Rabbit involving domestic tasks.2
The growth of "on demand economy" or "gig economy" has revealed the shortcomings of the worker-independent contractor dichotomy in addressing the new forms of work engaged through digital platforms. While it may be true that service providers work "at their own will" and "for whoever they want" (they may work for several platforms and accept or refuse orders), and that they frequently use this sort of work arrangement as a "side gig" to their main occupation, such service providers may also be subject to an important degree of control from the platform owner ("not work at will"), on which they may also have an economic dependency. The imminent rise of these work forms in Venezuela leads us to ask ourselves: Is the employment test conceived through Venezuelan case law, appropriate to classify and govern the new work forms in a digital economy? Should the judges be responsible for settling employee/independent contractor disputes on a case-by-case basis? Or rather, should legislature be set to the task of designing a specialized employment test adapted to the new work forms in an on demand economy in order to ascertain who may or may not have access to the protections afforded by labor laws under an "all" (employee) or "nothing" (independent contractor) approach? Or should the legislator opt towards the creation of an intermediate category between employee and independent contractor in which certain, but not all labor rights are granted? Which option is better to incentivize occupation through digital platforms as part of a recovery program for Venezuelan economy?
This paper focuses on the relationship between drivers and riders, on one side, and companies with apps that allow them to engage transport and delivery services, on the other. We do not address occasional work contracted through digital platforms (crowdsourcing) in the form of micro-tasks (domestic works, translations, web page designs, and digital publicity, video production and editing, virtual assistant, among others), which bring about lesser issues regarding their classification and regulation.3
II. The business model of ride-hailing services or ride-sharing services engaged through apps.
Intermediary technology companies develop an app that establishes a communication channel between clients who require transport and private drivers who offer it. The company may predefine certain eligibility requirements for drivers to register and use the app, such as, for example, the need for the vehicle to meet certain conditions, driver's license and absence of criminal records. The driver decides when she connects/ logs on to the platform and what rides (clients) she accepts or not. Drivers also decide the route for each destination, even though the app may suggest a quicker track. Once the ride is completed the client is given the opportunity to rate the service. The price for the ride is set by the app based on a dynamic algorithm that processes supply and demand for various zones and hours of the day. The customer, who has previously provided her bank information, pays to an account (generally an escrow account) from which the rate charged to the client is distributed between the intermediary company and the driver. Drivers may offer their services simultaneously through several competing platforms or combine their driver activity with a subordinate employment at a company of an alternate business branch.
III. The relationship between drivers and companies owning apps in the light of comparative case law.
Conclusions reached by comparative case law on whether drivers are employees or independent contractors have been disparate and at times contradictory.
The High Court of Brazil in a decision dated 08/28/20194 found that drivers engaged through the app do not hold a hierarchical relation with Uber because their services are provided eventually, without a predetermined schedule or fixed salary, which was deemed enough to rule out the existence of an employment relationship between the parties. The Court concludes that the drivers are independent entrepreneurs.
The Fair Work Commission of Australia, in decisions dated 07/12/2019 and 12/21/20175 applied the established test for identifying an employment relationship, only to conclude that an Uber was not an employee covered by the law against unfair dismissal, and could not even be considered a temporary worker. In this decision a detailed account of the indicia of the employment test was examined: (i) Control: the driver had complete control in providing services, deciding himself when to accept and reject rides (albeit the Commission concedes that the imposition of service standards and pricing parameters could limit the driver's control to a point). (ii) Equipment: the driver provided his own vehicle, phone and mobile data and funded his own insurance. (iii) Uniform: the services agreement prohibited the driver from wearing a uniform, Uber distinctive or displaying the Uber logo on his car. (iv) Taxes: the driver was registered with the social security as an autonomous entrepreneur. (v) How the services agreement categorized the relationship: the agreement described Uber as a payment collection agent and provider of technology services. (vi) Payment method: the driver shared the fee charged to the client with Uber and did not receive a fixed income or was entitled to paid leave.
Despite the above, it is telling that the Commission expressed its concern in that the conventional test does not cover aspects such as the agreement on the distribution of income between the parties (how much does the driver receive for each ride v. how much Uber takes), the relative bargaining power of each party and the driver's eventual economic dependence on Uber. This concern also appears in other case law from this country as will be argued later on.
An identical conclusion is reached in the Australian Fair Work Ombusdman's decision of June 7, 20196. According to the Australian Ombudsman, for an employment relationship to exist, there must be, at a minimum, an obligation for an employee to perform work when it is demanded by the employer. The Ombusdman goes on to consider that Uber Australia does not require drivers to perform work at particular times and that drivers have control over whether, when and for how long they perform work, on any given day or week.
So the freedom that drivers have in organizing their time is perceived as the defining factor by both Brazilian and Australian case law, in assessing that the commercial arrangement between Uber and the drivers does not amount to an employment relationship.
A glance at how United States' case law has evolved shows the complexities and challenges that the traditional employment test faces when dealing with work hired through digital platforms. On March 11, 2015 the District Court of the Northern District of California overruled the defendants' (Uber and Lyft) motion to decide the case under a summary judgment and not a jury trial which would require an exhaustive examination of proof and where facts would be set and used as grounds for the judge to pass her ruling (in this case to adjudge employment or not). The Court concluded that the employment presumption had been laid down based on the degree of control test (Borello test named after the leading case that established it)7. Such test is oriented towards determining the degree of control an employer has - or retains the right to have- over the work performance details. Uber and Lyft held that they were not private transport companies but rather technology companies to which the drivers do not provide a personal service, but that quite contrarily, they are costumers of and benefit from the platform that Uber and Lyft sets at their disposal to generate rides. While the judge did find that Uber and Lyft not only sell software but also sell "journeys" "rides" or "trips" and that the services performed by the drivers are an essential and indispensable part of the business structure of those companies, it is in the conclusions of both rulings where the judge acknowledges the limitations of the traditional employment tests in assessing work engaged through digital platforms. To this effect, the decision O´Connor v. Uber concludes:
The application of the traditional test of employment—a test which evolved under an economic model very different from the new "sharing economy"—to Uber's business model creates significant challenges. Arguably, many of the factors in that test appear outmoded in this context. Other factors, which might arguably be reflective of the current economic realities (such as the proportion of revenues generated and shared by the respective parties, their relative bargaining power, and the range of alternatives available to each), are not expressly encompassed by the Borello test. It may be that the legislature or appellate courts may eventually refine or revise that test in the context of the new economy. It is conceivable that the legislature would enact rules particular to the new so-called "sharing economy." Until then, this Court is tasked with applying the traditional multifactor test of Borello and its progeny to the facts at hand. For the reasons stated above, apart from the preliminary finding that Uber drivers are presumptive employees, the Borello test does not yield an unambiguous result. The matter cannot on this record be decided as a matter of law. Uber's motion for summary judgment is therefore denied.
Similarly, the Cotter v. Lyft judgement closes with the following admonition:
"As should now be clear, the jury in this case will be handed a square peg (the service performed by the Lyft driver) and asked to choose between two round holes (employee or independent contractor). The test the California courts have developed over the 20th Century for classifying workers isn't very helpful in addressing this 21st Century problem. Some factors point in one direction, some point in the other, and some are ambiguous. Perhaps Lyft drivers who work more than a certain number of hours should be employees while the others should be independent contractors. Or perhaps Lyft drivers should be considered a new category of worker altogether, requiring a different set of protections. But absent legislative intervention, California's outmoded test for classifying workers will apply in cases like this. And because the test provides nothing remotely close to a clear answer, it will often be for juries to decide". (Parenthesis added by the author to better understand the "fit a square peg in a round hole" reference)8.
The reasoning followed by Uber and Lyft, and the resignation and skepticism shown by the North American judges in applying traditional employment tests to new forms of work, bring forward the need to either update or redefine such tests, whether through case law or especial legal reform in order to ensure a higher degree of certainty in the legal world.
That was precisely the intention of the California Supreme Court with its 04/30/2018 ruling (Dynamex Case). Dynamex is an express courier company similar to Fedex, DHL, Zoom or MRW that treated its couriers (package deliverers) as worker until 2004, when it decided to reclassify them as independent contractors. In Dynamex, the California Supreme Court was faced with the task of analyzing which standard or test was adequate to determine if the Dynamex couriers were employees or independent contractors under the minimum wage and other working conditions executive orders (surprisingly enough, in the United States certain service providers can be employees pursuant to certain type of regulations, but not under others). Instead of applying the multifactorial test from the Borello case, that stresses the degree of control, the Court adopts the ABC test which can be found in Codes, Laws and case law from other States, because it was deemed to be more accurate and consistent with the "suffer or permit to work standard" required by the Californian executive orders on minimum wage to establish its applicability (who should be considered employer?). According to this general enunciation, if an entity requires, tolerates or allows an individual to work, then it must be held as its employer, all the more if that individual works in the primary business of the hiring entity9.
The ABC test ensues the almost universal presumption that deems all personal services providers as employees and allows them to be classified as independent contractors solely if they meet each one of the following requirements:
- That the service provider is free from the control and direction of the hirer, both under the contract for the performance of the work and in fact;
- That the service provider performs work that is outside the usual course of the hiring entity's business; and
- That the service provider is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.
Notably, Dynamex's ABC test, does considerably simplify other employment test factors, but it does not constitute a radical shift from the Borello test or other multifactorial tests. For example, the ABC test does not consider what proportion of the rate charged to customers is allocated to the courier or whether the courier performs services eventually or occasionally as a "side gig" to a main source of income, (a relevant fact to other relationships, considering that 45% of Uber drivers in California work less than 10 hours per week). Consequently, we do not see in the Dynamex ruling, relevant efforts to include new defining elements to the employment test in the context of the sharing economy, as to allow a distinction between workers and freelancers.
Without a doubt, in requiring that employers concurrently meet all three elements of the test to classify a service provider as an independent contractor, who would not be subject to the work executive orders of California, the burden of proof on employers is ever more stringent after Dynamex.
Yet, the Dynamex ruling did not settle the dispute over which the appropriate standard (test) was, to determine if Uber and Lyft drivers should be treated as employees or independent contractors. A testament to this is the Assembly Bill 170 (AB170) of California approved on October 2, 2019, which seeks to codify and clarify the application of the Dynamex ruling10. This bill expands the applicability of the ABC test from the Dynamex case, across the Labor Code and other work regulations. However, AB170 then enunciates a long and exhaustive list of professions and business types to which the Borello test should apply in order to confirm employment, among which there is no mention of service providers engaged through digital platforms such as Uber and Lyft11. The open purpose behind AB170 is to establish the application of a higher and more demanding evidentiary standard in order for these and other companies to classify drivers and deliverers as freelancers. Companies have announced that they intend to propose a referendum on California´s 2020 ballots, and we do not discard the possibility of negotiations with California senators to grant drivers right entitlements belonging to an intermediate status.
Instead of innovating in employment classification or regulating digital platform hiring, California's legislative intent poses an assertion of the ABC test, which contains few original elements to elucidate the condition of services providers engaged through digital platforms.
In the United Kingdom, there are two judicial rulings of special interest: a judgment from the Employment Tribunal of London of 10/26/2016 and another judgement from the Employment Appeal Tribunal of 11/10/201712. Both judgements held that there were obligations upon Uber drivers that they should accept the trips that were offered and that they should not cancel trips once accepted, there being potential penalties for doing so. For instance, the drivers had the obligation to accept at least 80% of trip requests to retain their account status, or if they refused as much as three consecutive trip requests they would be forcibly logged off the Uber App between two and ten minutes. So the British courts conclude that the drivers were not at liberty to take on or refuse work as they chose.
The judgements also assert that drivers are not free to negotiate or set their rates as they are established directly by the platform that enables interaction with the customer, and the driver does not take part in the contractual relationship. They further point out that Uber controls the personal data of passengers and bears the loss of fraudulent payments made by customers. In short, the British courts deemed the drivers take part in Uber's business, which is no other than that of transportation services13.
Notwithstanding the above, the British courts leave room for Uber drivers who are available to work for or through competing apps, to be held as independent contractors and not workers, which highlights the importance of the factual circumstances of each case, in determining the relationship between platforms and drivers.
In France, a recent decision from the Court of Appeal of Paris from 01/10/1914 considered that the fact that the drivers' activity is carried out through an organized network could suggest the existence of subordination, all the more if the hirer unilaterally lays down the performance conditions. In this particular case, the Court found that, once logged on the app, the drivers must be available to meet trip requests. Uber allocates the costumers and the drivers lack the freedom to limitlessly reject the trip requests, since after three rejections in a row, they receive an app message from Uber, warning them that Uber reserves its right to change their account status or restrict their access to the app. It is Uber who sets the rates through an algorithm and having the ability to set rates is a distinct element of independent contractors. The Court also noted that drivers do not have a real possibility of developing and having their own differentiated client base other than the one provided by the app. It held that Uber not only lays down the route to be followed by the drivers for each trip, but it also establishes behavioral guidelines such as refraining from unpleasant conversation, receiving tips or arranging trips without informing Uber. Overall, the Court considers that there are enough criteria to confirm a subordination relationship between the driver and Uber15.
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Footnotes
* Attorney at law graduated from Universidad Católica Andrés Bello (UCAB) with a Master of Laws Degree from Havard University. Regarded by Chambers & Partners and Legal 500 as a top ranking lawyer on labor and employment law in Venezuela (Band 1). His area of expertise comprehends labor aspects in connection with business transactions, due diligence, compensation and benefits, global mobility, sensitive terminations and labor bargaining. He is Arbitrator to the Chamber of Commerce of Caracas and the Arbitration Centre of Venamcham. He has taught Labor Law at the UCAB and lectured on several courses on labor regulation at Instituto de Estudios Superiores de Administración (IESA).
2. Meituan Dianping, for instance, surpasses 400 million users and 5 million affiliated restaurants, manages 20 million orders per day, has almost 600 thousand active riders and for the first quarter fo the year it closed with transactions valued at 10,700 million dollars, 38.6% higer than the same period by 2018. According to the company, the pace of its service —an average of 28 minutes— is largely owed to the artificial intelligence system that determines in 0.55 miliseconds the best route for the deliveries. Such figures allow us to have an idea of the dimensions that the on demand economy is gaining globally. (Aldama, Zigor: La revolución de la logística China que deja a Amazon por los suelos. Retina, El País Economía, July 7, 2019). Just in London city alone there 30 thousand Uber drivers and in Australia the number of drivers reaches 60 thousand. There are close to 3 million Uber drivers in the world and 1.3 million Lyft drivers, a platform that operates in USA exclusively.
3. In these cases, the involvement of apps in the business activity is limited to enable contact between the service seeker and freelancer without influence on the price setting or the way in which the service is performed. The relationship between the parties is not continued in time either.
5. https://www.fwc.gov.au/documents/decisionssigned/html/2017fwc6610.htm y https://www.fwc.gov.au/documents/decisionssigned/html/2019fwc4807.htm
7. S.G. Borello & Sons, Inc. V. Department of Industrial Relations (1989) 48 Cal. 3d.341
8. In 2016, the Uber case was almost settled when Uber agreed to pay as much as $100 million to the roughly 385,000 drivers that were in a similar position as those from O'Connor which had previously been given a class certification status by a court (class action), so long as it could continue to classify them as freelancers. But the settlement was later rejected by a federal judge, who argued that the amount was insufficient. Adding to what already was a distressful case, in 2018 the Ninth US Circuit Court of Appeals reversed the O'Connor v. Uber's class certification status, nullifying the decision on the ground that Uber's arbitration clause prohibits class actions, ultimately reducing the size of the class to about 13,600 drivers, and with it, the impact of such decision was significantly mitigated.
9. This is why companies like Uber and Lyft strongly argue that their main business is the supply of technology platforms or apps, as opposed to private transportation services or supply of travel services "rides".
10. Otros estados han marchado en la dirección opuesta y han aprobado leyes que califican a los conductores de Uber y Lyft como "contratistas independientes" (Indiana) o establecen una presución desvirtuable de que son "contratistas independientes" (South Dakota); y todavía otros Estados han diseñado tests de laboralidad para facilitar la exclusión de los conductores del régimen laboral (Arkansas, Nevada).
11. Insurance agents, doctors, veterinaries, lawyers, accountants, architects, financial advisors, photographers and newspaper editors, vendors, newspaper distributors, among many others.
13. On the discussion of whether Uber services are merely technological intermediation or an ancillary intermediation service to a main transport business activity, and if this issue should be governed by EU law or domestic law of the Member States, the European Court of Justice has said in a decision from December 20, 2017, that: "the intermediation service provided by Uber is based on the selection of non-professional drivers using their own vehicle, to whom the company provides an application without which (i) those drivers would not be led to provide transport services and (ii) persons who wish to make an urban journey would not use the services provided by those drivers. In addition, Uber exercises decisive influence over the conditions under which that service is provided by those drivers. On the latter point, it appears, inter alia, that Uber determines at least the maximum fare by means of the eponymous application, that the company receives that amount from the client before paying part of it to the non-professional driver of the vehicle, and that it exercises a certain control over the quality of the vehicles, the drivers and their conduct, which can, in some circumstances, result in their exclusion. That intermediation service must thus be regarded as forming an integral part of an overall service whose main component is a transport service."
14. https://revuefiduciaire.grouperf.com/plussurlenet/complements/CA-Paris-UBER-10-01-2019.pdf
15. In Spain, Uber and Cabify have adopted an organization model that has spared such platforms from judicial debate. This is due to the fact that in Spain, these companies have chosen to license their technological platforms to third parties, in exchange for royalties. Those companies are responsible for hiring a fleet of drivers under an employment contract and paying them labor benefits under Spanish labor law, excluding from the get-go any debate on the classification of the relationship. In general, these companies pay their employed drivers a minimum wage (900 Euros) plus an amount equal to 40% of the trips that have been invoiced in excess of the invoice threshold (for example, 4000 Euros) although, because they are licensed technology companies, the terms of the individual agreements usually vary. The licensed companies also bear the costs for gas, vehicle maintenance and repair. According to Spanish newspaper La Razón, the Spanish Taxi Federation would be preparing a claim under the assertion that there is an illegal assignment of workers (forbidden outsourcing or subcontracting) between Uber and Cabify and the companies that operate the vehicle fleet, pursuant to article 43 of the Spanish Statute of Workers. The counsels of the Federation argue that in order to clarify if there is an illegal assignment of employees, the dependence on the means and the performance to benefit of a third party, as well as earnings and risks, must be assessed. While it may be true that the licensed companies provided the vehicles (means), they cannot provide services without the intermediation of the app offered by Uber and Cabify. As for the earnings, they argue that Uber and Cabify get the best out of the business and that they are not subcontracting a incidental or sideline activity, but that it is a central activity to the business, without which it would be inconceivable to provide services. Concerning the risks, they argue that even though the licensed company is liable in case of accidents, the rating of the services is carried out through the application and to the final client, Uber and Cabify are responsible for the services at all times, as for them, the licensed company does not exist. With respect to the dependence element, they argue that the app algorithm allocates the services and not the licensed companies and so, the instructions come from Uber and Cabify and not the licensed companies. Surely, for a successful claim, the Taxi Federation must not only prove the aforementioned features, but also prove that this arrangement has the purpose of evading labor obligations. A true challenge if one considers that the drivers hired through the operating companies are already entitled to the labor benefits afforded by Spanish law to employees.
Even so, the position of the Spanish Taxi Federation shows once more, that inasmuch as the relationship models of the sharing economy continue to be analyzed through the lens of conventional labor laws, the risks and legal uncertainty will continue to be present in platform companies and drivers relationships.
Originally published Caracas, January 10, 2020
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