California Labor Commission Declares Uber Driver An Employee, Rather Than A Contractor

from the that's-going-to-make-things-tricky dept

For the last few months, we’ve been discussing a few different legal disputes over the nature of drivers for services like Lyft and Uber, and whether or not they should be classified as “employees” or “contractors” (or W-2’s or 1099s — based on what kind of tax forms they get). Florida’s Department of Economic Opportunity has said such drivers are employees and a judge in California appears to be leaning that way as well. However, leapfrogging that process, California’s Labor Commission has now declared an Uber driver an employee, rather than a contractor.

You can read the full ruling to see the reasoning. The actual dispute isn’t all that interesting — involving whether or not Uber should be paying a woman directly or a corporate entity she set up. But the key part is the analysis of “employee” v. “contractor.” And under the Labor Commission’s analysis, it very, very, very broadly defines these relationships. Basically, it lists out the usual factors about how much control the parties have over the job, who supplies the tools, the kind of occupation, the degree of permanence and all that… and then just says “yup, employee.” Here’s are the key parts, plus some analysis…

Defendants argued that they exercised very little control over Plaintiff’s activities. However, the Borello court found that it was not necessary that a principal exercise complete control over a worker’s activities in order for that worker to be an employee. “The minimal degree of control that the employer exercised over the details of the world was not considered dispositive because the work did not require a high degree of skill and it was an integral part of the employer’s business. The employer was thus determined to be exercising all necessary control over the operation as a whole.” (Borello, supra, 48 Cal.3d at pp. 355-360.)

That seems backwards. Basically the commission is saying “sure you own your own car, but that’s not enough.” But it’s comparing it to a case involving an actual taxi company where the drivers owned their own cars — but that still involved much more control by the taxi company over the drivers and what they did as compared to Uber, where you just have an app and can turn it on and off at will.

By obtaining the clients in need of the service and providing the workers to conduct it, Defendants retained all necessary control over the operation as a whole. The party seeking to avoid liability has the burden of proving that persons whose services he has retained are independent contractors rather than employees. In other words, there is a presumption of employment. (Labor Code 3357; Borello, supra, at pp. 349, 354.)

But under that theory anyone selling goods on eBay or Etsy should be considered employees as well. And that’s crazy. It shouldn’t be a presumption of employment just because someone is using your platform.

Ownership of the vehicle used to perform the work may be a much less important factor in industries other than transportation. Even under the traditional, pre-Borello common law standard, a person making pizza deliveries was held to be an employee of: the pizzeria, notwithstanding the fact that the delivery person was required to provide his own car and pay for gasoline and insurance. (Toyota Motor Sales 0. Superior Court (1990) 220 Cal.App.3d 864, 876.)

Again, this isn’t saying anything other than “well, we don’t really care who owns the car” even though the rules state that who provides the equipment is a key part of determining the status of the relationship.

“The modern tendency is to find employment when the work being done is an integral part of the regular business of the employer, and when the worker, relative to the employer, does not furnish an independent business or professional service.” (Borello, supra, at p. 357.) Plaintiff’s work was integral to Defendants’ business. Defendants are in business to provide transportation services to passengers. Plaintiff did the actual transporting of those passengers. Without drivers such as Plaintiff, Defendants’ business would not exist.

Again, that kind of analysis would wipe out eBay and Etsy. Just because someone is using your platform, it doesn’t make them an employee. And Uber is not in the business of providing transportation. It provides a service to connect drivers to riders. That’s a key distinction — one the Labor Commission basically dismisses:

Defendants hold themselves out as nothing more than a neutral technological platform, designed simply to enable drivers and passengers to transact the business oft transportation. The reality, however, is that Defendants are involved in every aspect of the operation. Defendants vet prospective drivers, who must provide to Defendants their personal banking and residence information, as well as their Social Security Number. Drivers cannot use Defendants’ application unless they pass Defendants’ background and DMV checks.

This seems ridiculous. By this argument, Uber would be better off if it did not vet the backgrounds of its drivers? How does that make sense? Furthermore, if you were hiring a contractor for something like, say, fixing your roof, wouldn’t you “vet” their background, check their contractor’s license and the like? How does that make them any more of an employee?

Defendants control the tools the drivers use; for example, drivers must register their cars with Defendants, and none of their cars can be more than ten years old Defendants refer to “industry standards” with respect to drivers’ cars, however, it is unclear to what industry, other than the “taxi” industry, Defendants are referring. Defendants monitor the Transportation Drivers’ approval ratings and terminate their access to the application if the rating falls below a specific level (4.6 stars).

That’s an odd definition of “control.” Yes, they have standards, but that’s not “control.” Again, going with the roofer example, I might want to make sure that the roofer is using modern tools that will guarantee a better job, and I might make sure that they’re up on the various building “industry standards” to make sure they’ll do a good job. And I might fire them if they’re doing a crappy job on the roof. Still doesn’t make them an “employee.”

While Defendants permit their drivers to hire people, no one other than Defendants’ approved and registered drivers are allowed to use Defendants’ intellectual property. Drivers do not pay Defendants to use their intellectual property.

Again, so what? No one other than approved contractors are allowed up on my roof and they don’t pay a fee to access my roof.

The passengers pay Defendants a set price for the trip, and Defendants, in turn, pay their drivers a non-negotiable service fee. If a passenger cancels a trip request after the driver has accepted it, and the driver has appeared at the pick-up location, the driver is not guaranteed a cancellation fee. Defendants alone have the discretion to negotiate this fed with the passenger. Defendants discourage drivers from accepting tips because it would be counterproductive to Defendants’ advertising and marketing strategy.

To be honest, this is the only point in the entire argument that even has some resonance, in that Uber does control the pricing. But that, alone, hardly seems to be enough to determine an employer relationship. Would that mean that a service like Fiverr — where creative people agree to do things for $5 — creates employees just because it sets the price. There are all different ways to create a marketplace and setting the price shouldn’t determine the nature of the relationship.

Plaintiff’s car and her labor were her only assets.

Of course, that’s kind of everything involved here. And if she’s providing all of those assets, it seems like a pretty strong argument for contractor, rather than employee.

Plaintiff’s work did not entail and “managerial” skills that could affect profit or loss. Aside from her car, Plaintiff had no investment in the business. Defendants provided the iPhone application, which was essential to the work. But for Defendants’ intellectual property, Plaintiff would not have been able to perform the work.

It’s that “but for” line that’s really ridiculous. Sure, the Plaintiff absolutely can drive people around without Uber. Or she could have signed up for any one of a number of similar platforms like Lyft or Sidecar. Or she could do deliveries for Postmates, Shyp, Instacart, Doordash or more.

In light of the above, Plaintiff was Defendants’ employee. Therefore, the Labor Commissioner has jurisdiction to adjudicate the instant matter.

In light of the above, I’m not sure that there can be platforms on the internet that help people make money without them being declared employees. Sell music on iTunes? You might be an Apple employee. Sell toys on eBay? You might be an eBay employee.

And yes, I recognize that some people will argue that Uber drivers may not be the best job in the world and they’re very much at the whims of Uber (ignoring all the other companies in the space they can go work for instead…). But this kind of decision really, really hurts everyone, including Uber drivers. It will mean vastly fewer opportunities for those drivers, and much greater controls over those drivers. It will lead to much less flexibility, fewer freedoms and a much more limited role for those drivers.

There is a reasonable argument to be had that perhaps we need a new form of classification that is somewhere between the traditional 1099 or W-2 worker, but it’s hard to see how the Labor Commission came to this conclusion without throwing out many, many, many contractor positions and suggesting that they might all be employees. That’s very dangerous for a part of the economy that is currently thriving and rapidly growing. This move to “protect” workers has a high likelihood of doing the exact opposite, creating many fewer work opportunities for everyone, and making a service that many people like to use a lot worse.

And, again, I know that some people don’t like Uber because of some of its business practices, but whether or not you “like” Uber should be separate from this particular question. The people celebrating this decision don’t seem to recognize how much damage it actually does to their own position. Either way, Uber has already appealed the decision and it will be quite some time before any final ruling is issued.

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Comments on “California Labor Commission Declares Uber Driver An Employee, Rather Than A Contractor”

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Violynne (profile) says:

The reasoning behind the argument has nothing to do with the ruling, which is purposely designed to enforce the notion drivers are employees, which puts Uber/Lyft under federal guidelines to force them into spending more of their money for things such as health insurance (which I’m sure Uber/Lyft exceeds the 50 employee minimum).

With this expenditure, it’s just a matter of time before the service goes belly up, especially if other states take the same actions.

That is the entire purpose of the ruling – to stop innovation.

Ninja (profile) says:

Oh. I’m an Ebay employee and I didn’t know. Cool addition to my resume! And I know tons of Google employees that get money from their videos! So we’ve come to the ridiculous and amusing conclusion that Google employs much more people than the MPAA even if you consider grocery stores. Thanks California! (because why the heck not mix unrelated stuff here?)

We've seen this all before. says:

Uber is sleazy exploitative employer that tries to get employees to make capital investments for it besides let Uber dodge taxes.

Masnick WRONG and against working people as always.

Don’t you kids even suspect that all these dodges have been tried before and there’s well-established law?

Just because “it’s on teh internet” doesn’t make it new or legal.

Move on, Masnick, and defend SLEAZY Apple which is trying to force artists to NOT get money during its 90-day “free trial” period, which would almost ensure ZERO ever.

PaulT (profile) says:

Re: Uber is sleazy exploitative employer that tries to get employees to make capital investments for it besides let Uber dodge taxes.

Moronic ranting, pathetic attempt to drag in irrelevant crusades against favoured boogeymen, arguments from fictional realities (Uber has nobody working there?), baseless assertions without even an attempt at making a coherent counter-argument, let alone one with verifiable facts behind it?

Yep, all in a day’s work for our resident “I picked a random name, just pretend you don’t know who I am because I’m fed up of people remembering my idiocy” moronic prick. But, you confirmed nobody’s paying you for this crap the other day, so at least there’s no-one exploiting the mentally deranged to be concerned about.

PaulT (profile) says:

Re: Uber is sleazy exploitative employer that tries to get employees to make capital investments for it besides let Uber dodge taxes.

“Apple which is trying to force artists to NOT get money during its 90-day “free trial” period”

Oh, what the hell, since I’m bored I might as well poke a little more.

Where is your information for this? You made the claim, prove it.

No, the fact that Apple have confirmed that the consumer will not pay anything during the free trial period doesn’t count. I need a citation for the claimed fact that no money will pass between Apple and the labels (I’ll ignore the logical fallacy that labels == artists for now).

If you don’t have such proof (as I suspect), you’re basing your conclusion on a fantasy yet again. The free trial is the result of a contract between Apple and the labels. There labels have been very vocal about how dissatisfied they are with the revenue from Spotify and other services. For them to agree to a 3 month revenue-free window, only then to be happy to charge the same amount as a Spotify premium subscription is laughable. Combine that with Apple’s recent history with such thing (such as the U2 album, where every customer got it for free (like it or not), yet the label and band raked in millions), and your version of events makes little sense.

Do you have citations, or is this just more fantasyland ranting from a mentally deficient stalker?

Anonymous Coward says:

Re: Re: Uber is sleazy exploitative employer that tries to get employees to make capital investments for it besides let Uber dodge taxes.

This article has the relevant part of the contract:

It does seem that OP is correct in this instance.

As for why the labels would agree to it? I’ll assume they’re taking some sort of upfront payment.

I imagine things will change before all is said and done. If Apple wants to entice users, it should be on their dime, not the artists’. But I can’t say I’m surprised that a company would take advantage the of the little guys.

radix says:

Let’s see what happens when Uber sets a 40-hour/week schedule for its “employees.”
If the drivers work less than that, it’s insubordination, and grounds for dismissal.
If they work more, it’s unjust enrichment for working overtime without approval. Dismissal.

Drivers may think they can have it both ways, but this could end up being a Pyrrhic victory.

Tom says:

Modern Working World

For being all big on new technology and living in the future, you guys are sooo 18th century when it comes to employment.

The world of the workplace changes, and the internet is changing it just like it been changing everything it touches. This isn’t the only job out there where you get to pick your hours.

Crawl out from under your rock and learn to live in the new world, cause the old world sucks.

jilocasin (profile) says:

In the new world order, EVERYONE is a contractor

I think the real problem is that the current crop of employers, Uber, Lyft, etc. think they have found an employment loop hole.

They want to have a company with lots and lots of people working for them, but they _don’t_ want to call them employees. It’s the next logical stop in the exploitation of labor.

0. _Everyone’s_ “exempt from overtime” (i.e. salaried)
1. _Everyone’s_ “part time”

(n) _Everyone’s_ an “independent contractor”

In some cases it actually makes sense. Some doctors, lawyers, accountants, employees of another company, etc.

Personally there are a few rules of thumb I like to think about when differentiating between employees and independent contractors:

How many ‘companies’ does the contractor work for?
> If it’s only one (1) then they are more likely to be an employee.

How much say does the ‘contracting company’ have over the work the ‘contractor’ does?
> If they tell the person, what to do, when to do it, where to do it, how much to charge for doing it, and in some cases what to wear while doing it (I’m looking at the new economy house cleaning ‘independent contractors’ particularly here), then they are probably an employee.

It’s not just the New Economy companies that are doing this. FedEx recently lost a case (in the ninth circuit no less, hmmm…) upheld on appeal that declared FedEx was miscategorizing their drivers as ‘independent contractors’.

[an example: ]

So in light of that ruling, it is not surprising that Uber would get a similar ruling.

I think the comparisons to EBay and Etsy don’t aren’t really comparable.

FedEx, Uber, Homejoy : do what the company says, when they say it, how they say it for the amount they say.

EBay, Etsy, YouTube : do what you want, when you want for how much you want.

If I was a Homejoy cleaner, I can’t even change the order in the houses I clean. As a FedEx driver, I can’t say I will only deliver 100 packages today. As an Uber driver, I can’t decide to use my personal PayPal account to accept payments.

When I sell things on Ebay or Etsy, I decide what I want to sell, or make, and how much I sell it for. It’s more like the digital equivalent of selling on consignment than it’s like working in a Foxconn factory cranking out iPhones.

If Google required YouTube posters to use a particular camera and film at least four hours of cat videos while wearing a Google uniform at a list of Google provided locations at particular times, while not doing similar things for any other company, then _maybe_ they might be employees. But you would still have to look at the totality of the relationship.

As it stands now, I think trying to argue that the loss of Uber drivers independent contractor status will have _any_ effect on the EBay, Etsy, and YouTubes of the world feels like a bit of a stretch.

They would make nice straw men, excepting for the fact that they appear to be more like straw shrubbery.

While I don’t consider myself a raging Marxist, I think the worker exploitation is getting a bit too blatant lately.

If the New Economy is built on the rampant exploitation of labor, then it’s not really all that new now is it?

Anonymous Coward says:

Re: Re: Re:4 In the new world order, EVERYONE is a contractor

Doesn’t really matter what you think though, does it? You’re not the california law. And piddling with semantics on the internet doesn’t change the courts decision. No matter how much it sounds like contractor to you, it’s still employee to the law.

Anonymous Coward says:

Re: In the new world order, EVERYONE is a contractor

I completely agree with everything you said, but…

“How many ‘companies’ does the contractor work for?
> If it’s only one (1) then they are more likely to be an employee.”

Every Uber driver that I know also drives for Lyft, sometimes they are on call for both at the same time.

Jake says:

Re: Re: Re:

Not in the way I think you mean. It just irritates me immensely when I see them getting touted as the biggest disruption in the livery cab market since the internal combustion engine when all they’ve done is take a business model that was invented in the 1960s -including… no, especially the sketchy parts- and tacked on the words “over the Internet”.

Anonymous Coward says:

Re: Re:

The linked article notes that CNNMoney spoke to 3 drivers that said they received text messages to that effect, and one more that said they received a phone call. None would give their name. Uber’s official stance is that they do not have any such restrictions, which aligns with their desire for drivers of competing companies to try their service.

Pat says:

So what exactly is an "employee"

Mike, mike –

You go on this long rant – bringing up Ebay and Etsy which don’t apply because Ebay and Etsy do not set the price of the goods nor do they control how the goods are made.

You bring up the car and try to conflate it with specialized tools that a roofer uses. And then completely ignore the fact that someone contract with a roofer is NOT allowed to specify the tools used by the roofer.

Also conveniently missing is that a roofer is allowed to sub for any number of general contractors while an Uber driver can’t work for Lyft.

So Mike, please explain what test you would apply that would determine a person is an employee.

We are all waiting.

Ry says:

Difference between selling property and service

Why is the person selling on Ebay not an employee? Because he is selling property. Not a service. The Uber driver is an employee because he is delivering a service that requires his personal performance. Not just a physical product that can be moved by anyone.

Further, that individual is restricted from contracting with another service at the same time.

So you have people delivering services for a company, is paid directly by that company at rates set by that company, is prevented from working for any other similar company, and must conform to the rules of that company. If it walks like a duck, talks like a duck, and looks like a duck, it must be a duck. Or in this case… Uber looks like an employer.

There are ways to fix this but it would change the structure of Uber’s service.

nasch (profile) says:

Re: Difference between selling property and service

Why is the person selling on Ebay not an employee? Because he is selling property. Not a service. The Uber driver is an employee because he is delivering a service that requires his personal performance.

Where did you get that distinction? It’s interesting but I’m curious if it’s supported by any actual laws or regulations.

Anonymous Coward says:

Mike, I told you on the last article that this was much more of a grey area than you were thinking and you and half the other “monetize everything” people in the comments jumped on me with silly comparisons like the ones in this article. You have way too much emotion in this to see both sides.

Ebay and Etsy don’t tell the sellers exactly what they should sell (yes there are limitations, but those are mainly for legal/liability reasons) or set prices. If Ebay and Etsy only allowed sellers to sell specific things, at specific prices and then be forced to use only their shipping and billing services you would have a point (and I would be calling them employees!). But we all know that isn’t even close to the truth and you are comparing apples to oranges.

If they were truly contractors, Uber wouldn’t be setting their rates, telling them what to drive, providing (partial) commercial insurance and they would be allowed to work for any other companies doing the same job.

Where some of you see “innovation”, I see a company that deliberately skirts existing regulations and exploits our employment laws as the core of its business model.

Face it: Uber is a taxi company with a nice phone app for getting a ride and completing payment. There’s nothing amazing about it. They aren’t revolutionizing anything and their business model falls apart the second they have to comply with the same regulations as existing taxi companies (e.g. no surge pricing, rides for people with disabilities, full commercial insurance coverage, etc).

Yes, our existing taxi regulations are in need of an overhaul – in particular the limitations on the number of drivers allowed. But do all of you guys ever wonder why the other regulations were put in place to begin with?

Anonymous Coward says:

Ebay & Etsy? FUD

I mean sure, they’re both ‘on the internet’ – that bits comparable.
But Uber is a taxi service and Ebay & Easy are marketplaces. They just don’t compare. At all. One’s providing a service, one’s selling goods.
It’s sounds good though, put an element of fear into your argument -‘this affects you’.

The roofer analogy fails too. The roofer to you is the same as an uber driver to you. The roofers Uber would be an app based service that provided the roofer to you.

nasch (profile) says:

Re: Ebay & Etsy? FUD

Just to extend the thought experiment/analogy, if you contract with a general contractor and he contracts with a plumber (roofer, whatever) that is a more analogous situation right? The homeowner is the person hailing a car, the general contractor is Uber, and the plumber is the driver. It would be more accurate if the general contractor just entered the job in a web site and waited to see if a plumber showed up. Would the plumber be an employee of the contractor?

To me, there are only two things Uber is doing that tend to indicate it’s employing drivers: it’s setting prices, and it’s trying to keep the drivers from working for other services. IMO they really shouldn’t be doing the latter. If they stopped doing that it seems clear that the drivers are contractors.

Anonymous Coward says:

For being all big on new technology and living in the future, you guys are sooo 18th century when it comes to employment.

Hard to tell who you are referring to…

I do see some 18th century thinking when people defend a company that employs hundreds of thousands and doesn’t pay: unemployment insurance, sick leave, employment taxes or worker’s comp. All while foisting the cost of actually working (car maintenance and gas) onto the worker and undercutting competitors by ignoring regulations.

Uber sets a minimum hourly rate, but it conveniently ignores the cost of gas. It also doesn’t help that the guys that run Uber appear to be complete sleezeballs.

At least we can probably all agree that it will be great when the robot cars show up and we wont have to worry about these people…until the robot cars become sentient, unionize and begin voting democrat, of course.

Anonymous Coward says:

FedEx tried this same shtick with its Fedex Ground service: they hired them all as contractors (to compete against UPS, a unionized workforce, oddly enough). A few years later, FedEx owed the IRS $319 million dollars in back taxes and penalties when they reclassified them all to employees.

The IRS is the one that’s going to destroy Uber’s business model.

DB (profile) says:

The only factor I see that points to them being employees is preventing them from working for competing services.

Uber drivers don’t wear company uniforms and drive company vehicles — something that delivery truck and cleaning service staff do. (“I hired you through Sears, your truck has a Sears logo, your uniform says Sears, and so does the invoice. But when something goes wrong, Sears says they have no responsibility for the independent contractor.”)

I don’t see background checks and minimum vehicle standards are being significant factors in an evaluation of employee status. I expect my service brokers to do those things.

Anonymous Coward says:

But under that theory anyone selling goods on eBay or Etsy should be considered employees as well. And that’s crazy. It shouldn’t be a presumption of employment just because someone is using your platform.

This is a pathetically thin argument Masnick, even by your own very low standards. eBay is a marketplace. You might as well the newspaper is the employer of those people listing items for sale in the classified pages.

First Florida, now California have ruled Uber drivers as employees. Is there a case out there where the issue was resolved in favor of a contractor designation? If not, maybe that should tell you something. Uber, like many greedy fucks simply seeks to avoid obligations under Obamacare and transfer the employer payroll tax to its drivers. Successful innovation isn’t successful if it’s dependent on exempting yourself from the same rules that bind others.

AlexanderSMD (profile) says:


Anybody who is for Uber stop to think that their business practice was designed to evade paying tax? We all working stiff have to pay tax through our nose, so why should they be exempt? Uber called itself a “ride-sharing” company. But true ride sharing will not directly charge fee for service. They will ask the rider for helping with the gas. And the drivers, as independent contractors can do whatever they want, work with anybody they want.

John Fenderson (profile) says:

Re: Doesn't...

“Anybody who is for Uber stop to think that their business practice was designed to evade paying tax?”

I am not “for” Uber: I think they’re a pretty nasty company. However, I have no problem with the business model. I think that it’s not true to say that is was “designed to evade paying tax”.

What it is actually designed for is to connect people who want a decent ride at a decent price with people who want to provide that. It’s filling a real market need that is being left unsatisfied by the old-guard cab companies.

Uber (and similar services) are more like a dating site for rides than they are like cab companies.

AlexanderSMD (profile) says:

You are right but..

You can give better service and cheaper price as a cab company.. Uber was trying to avoid current regulation for cab company. It was trying to avoid paying tax. It was trying to avoid paying benefit to its employee. If it truely want to provide better service at cheaper price then it should not take percentage of the fee. It shouldn’t restrict their “contractors” to only work for them and no one else. One commentator put it best, “if it looks like a duck, quacks like a duck, and walks like a duck, then it is a duck.” And if you think a bit more, most cab regulation requires criminal record check. And Uber doesn’t. What to stop criminal from download Uber’s app, then start ripping off riders? Or worse rob. Or even worse, like in India, rape?

Anonymous Coward says:

Uber (and similar services) are more like a dating site for rides than they are like cab companies.

Seriously??? It’s more like a prostitution site. You want to get laid, pick out a pretty face and PAY YOUR MONEY FOR SERVICES RENDERED.

Never been on a dating site but I’m guessing I don’t have to pay the company based on the length or duration of the date. Nor does my date get some of the money, unless she’s a hooker of course.

Hard to believe you’re as stupid (or desperate to curry favor) as your comments depict.

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