Should individuals providing services through an app or other on-demand service in the new gig economy be considered employees? That question has been at the heart of many of the legal challenges facing companies like Uber who are creating a new economic model for workers. A judge in Philadelphia has decided that the answer to the question is no.
In April, Judge Michael Baylson of the U.S. District Court for the Eastern District of Pennsylvania in Philadelphia, ruled that Uber was right in classifying their UberBLACK drivers, who drive for Uber’s limousine service, as independent contractors.
Uber arguably has become the poster child for the challenges of the gig economy with several lawsuits over the last few of years concerning the ride-share company’s business policies and classification of drivers. From drivers receiving healthcare to expense reimbursements, the Uber lawsuits continue to shed light on the lack of clarity as to whether workers in the gig economy should be treated as employees rather than independent contractors. The latest dispute surrounds apps, on-call hours and drivers’ rights to wages.
Most of these lawsuits have been filed in California, but a new case was filed in 2016 by group of drivers in Philadelphia driving for Uber’s high-end UberBLACK service. The drivers claim Uber violated the FLSA by misclassifying them as independent contractors and failing to pay them minimum wage and time-and-a-half overtime. The drivers contend that while on-call and not driving, they were still working for Uber because of the on-call nature of their role while logged into the Uber app. They provide as further proof that while on call, they had to wear specific business attire for the UberBLACK service, and were barred from refusing fares for fear of suspension or termination.
In a familiar argument, Uber said its drivers are independent contractors and not covered under the FLSA. Uber also argued that even if the drivers were covered by the FLSA, they are able to conduct other activities while logged into the app until a ride was assigned. Indeed, the drivers said that they conducted numerous personal activities while logged into the Uber app. Those activities included accepting rides from private clients, sleeping, undertaking personal errands, smoking cigarettes, taking personal phone calls, rejecting driving assignments because they were tired, and conducting business for their independent transportation companies.
During the case, it was determined that several criteria pertaining to the drivers’ job duties weighed in favor of independent contractor classification. Since the plaintiffs are able to control the manner in which they work, use their own personal vehicles to perform said work, and the ability to work whenever they choose to do so, ultimately lead to them being classified as independent contractors.
One of the biggest tells of the outcome here however, comes from the Service Agreement. Before UberBLACK drivers can use the service to carry out driving services, they must accept the terms which state right of the bat that they are treated as independent contractors and goes into detail the relationship between Uber and the drivers, specifically stating that the “drivers have the “sole right” to determine the manner and means of utilizing the App; and (iv) Uber has “no right” to require drivers to display Uber signage, wear a uniform, or otherwise display any Uber affiliation.” This ultimately sealed the deal.
If the court had ruled in favor of the plaintiffs, the consequences for Uber could have huge. The drivers would have been entitled to overtime pay, benefits, and other law-enforced protections under the Fair Labor Standards Act (FLSA). The litigation and fines that could have surfaced as a result would be endless.
As the United States is moving largely towards a more equal and fair work environment for people operating in the gig economy, employers should ensure that they are properly classifying workers. Employment classification, exemption status, and wage determination legislation are becoming more stringent. Failing to comply with the FLSA, the Equal Pay Act (EPA) and other employee protection laws could be costly for organizations.
HR managers should be prepared to prove that they are classifying their employees correctly. Often times, the data that stores this information is messy and disorganized. HR managers should consider looking for third-party expertise in data consolidation and validation to ensure their data is organized and accurate.
The continued legal challenges to Uber’s business model goes well beyond Uber. The continued questions around employee classification should be a red flag to any employer that uses workers who qualify as part of the gig economy.
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