A federal judge dealt a huge blow to Uber by certifying a class of Uber drivers who claim the popular ride-hailing company misclassified them as independent contractors and unlawfully withheld tips. See O’Connor v. Uber Technologies, Inc., 3:13-cv-03826-EMC (N.D. Cal. September 1, 2015). Although the court did not determine whether Uber drivers are actually employees rather than independent contractors, its order allows the lawsuit to proceed on a class-wide basis, dramatically increasing Uber’s potential liability.
Uber will now have the burden of proving that its drivers are not employees. As the court order explains, the most important consideration in determining whether an employment relationship exists is the alleged employer’s right to control. The more control the alleged employer exerts over the service provider, the more likely it is that the service provider is an employee, not an independent contractor. While the right to control is the primary factor, there are several secondary factors relevant to this determination, making litigation of a misclassification claim a highly factual inquiry.
This class certification ruling is a microcosm of a larger battle that has been waging for years but recently reached new heights. Both state and federal laws are increasingly hostile to companies using contracted labor. Backed by union interests, politicians are even using this issue on the campaign trail to paint companies as uncaring and unconcerned with the economic interests of contracted workers.
Using outdated legal tests developed decades ago, these unfavorable rulings appear to threaten the core business models of ride-hailing companies like Uber and other on-demand service providers that rely heavily upon independent contractors. In light of this increased scrutiny and the significant exposure that companies face for misclassifying workers, companies that utilize independent contractors should carefully evaluate whether they have properly classified them.