Uber Drivers Deemed Employees by California Labor Commission(techcrunch.com)
techcrunch.com
Uber Drivers Deemed Employees by California Labor Commission
http://techcrunch.com/2015/06/17/uber-drivers-deemed-employees-by-california-labor-commission/
593 comments
A few thoughts:
1. This is an appeal from a decision by a hearing officer of the California Labor Commissioner. Most of the time such officers spend their days hearing things such as minimum wage claims. Hearings do not follow the strict rules of evidence and are literally recorded on the modern equivalent of what used to be a tape casette instead of by a court reporter. Such hearings might run a few hours or, in a more complex case, possibly a full day as the normative max. The quality of the hearing officers themselves is highly variable: some are very good, others are much, much less than good in terms of legal and analytical strengths. In a worst case, you get nothing more than a pro-employee hack. The very purpose of the forum is to help protect the rights of employees and the bias is heavily tilted in that direction. That does not mean it is not an honest forum. It is. But anything that comes from the Labor Commissioner's office has to be taken with a large grain of salt when considering its potential value as precedent. Hearing officers tend to see themselves as those who have a duty to be diligent in protecting rights of employees. Whether what they decide will ever hold up in court is another question altogether.
2. Normally the rules are tilted against employers procedurally as well. When an employer appeals a Labor Commissioner ruling and loses, the employer gets stuck paying the attorneys' fees of the prevailing claimant on the appeal. This discourages many employers from going to superior court with an appeal because the risk of paying attorneys' fees often is too much when all that is at stake is some minimum wage claim. With a company like Uber, though, the attorney fee risk is trivial and all that counts is the precedential value of any final decision. It will therefore be motivated to push it to the limit.
3. And that is where the forum matters a lot. The binding effect of the current Labor Commissioner ruling in the court is nil. The same is true of any evidentiary findings. The case is simply heard de novo - that is, as if the prior proceedings did not even occur. Of course, a court may consider what the hearing officer concluded in a factual sense and how the officer reasoned in a legal sense. But the court can equally disregard all this. This means that the value of the current ruling will only be as good as its innate strength or weakness. If the reasoning and factual findings are compelling, this may well influence a court. Otherwise, it will have no effect whatever or at most a negligible one.
4. What all this means is that this ruling has basically symbolic importance only, representing what state regulators might want as an idealized outcome. Its potential to shape or influence what might ultimately happen in court is, in my view, basically negligible.
5. This doesn't mean that Uber doesn't have a huge battle on its hands, both here and elsewhere. It just means that this ruling sheds little or no light on how it will fare in that battle. You can't predict the outcome of a criminal trial by asking the prosecutor what he thinks. In the same way, you can't predict the outcome here by asking what the Labor Commissioner thinks. In effect, you are getting one side of the case only.
6. The contractor/employee distinction is highly nebulous but turns in the end on whether the purported contractor is actually bearing true entrepreneurial risk in being, supposedly, "in business." There are a number of factors here that do seem to support the idea of true entrepreneurial risk but that just means there are two sides to the argument, not that Uber has the better case.
7. In the end, this will be decided in superior court and then, likely, on appeal to the California courts of appeal beyond that. It will take years to determine. In the meantime, the Uber juggernaut will continue to roll on. So the real question will be: should we as a society welcome disruptive changes that upset our old models or should we use the old regulations to stymie them? Courts are not immune from such considerations and, as I see it, they will apply the legal standards in a way that takes the public policy strongly into account. It will be fascinating to see which way it goes.
1. This is an appeal from a decision by a hearing officer of the California Labor Commissioner. Most of the time such officers spend their days hearing things such as minimum wage claims. Hearings do not follow the strict rules of evidence and are literally recorded on the modern equivalent of what used to be a tape casette instead of by a court reporter. Such hearings might run a few hours or, in a more complex case, possibly a full day as the normative max. The quality of the hearing officers themselves is highly variable: some are very good, others are much, much less than good in terms of legal and analytical strengths. In a worst case, you get nothing more than a pro-employee hack. The very purpose of the forum is to help protect the rights of employees and the bias is heavily tilted in that direction. That does not mean it is not an honest forum. It is. But anything that comes from the Labor Commissioner's office has to be taken with a large grain of salt when considering its potential value as precedent. Hearing officers tend to see themselves as those who have a duty to be diligent in protecting rights of employees. Whether what they decide will ever hold up in court is another question altogether.
2. Normally the rules are tilted against employers procedurally as well. When an employer appeals a Labor Commissioner ruling and loses, the employer gets stuck paying the attorneys' fees of the prevailing claimant on the appeal. This discourages many employers from going to superior court with an appeal because the risk of paying attorneys' fees often is too much when all that is at stake is some minimum wage claim. With a company like Uber, though, the attorney fee risk is trivial and all that counts is the precedential value of any final decision. It will therefore be motivated to push it to the limit.
3. And that is where the forum matters a lot. The binding effect of the current Labor Commissioner ruling in the court is nil. The same is true of any evidentiary findings. The case is simply heard de novo - that is, as if the prior proceedings did not even occur. Of course, a court may consider what the hearing officer concluded in a factual sense and how the officer reasoned in a legal sense. But the court can equally disregard all this. This means that the value of the current ruling will only be as good as its innate strength or weakness. If the reasoning and factual findings are compelling, this may well influence a court. Otherwise, it will have no effect whatever or at most a negligible one.
4. What all this means is that this ruling has basically symbolic importance only, representing what state regulators might want as an idealized outcome. Its potential to shape or influence what might ultimately happen in court is, in my view, basically negligible.
5. This doesn't mean that Uber doesn't have a huge battle on its hands, both here and elsewhere. It just means that this ruling sheds little or no light on how it will fare in that battle. You can't predict the outcome of a criminal trial by asking the prosecutor what he thinks. In the same way, you can't predict the outcome here by asking what the Labor Commissioner thinks. In effect, you are getting one side of the case only.
6. The contractor/employee distinction is highly nebulous but turns in the end on whether the purported contractor is actually bearing true entrepreneurial risk in being, supposedly, "in business." There are a number of factors here that do seem to support the idea of true entrepreneurial risk but that just means there are two sides to the argument, not that Uber has the better case.
7. In the end, this will be decided in superior court and then, likely, on appeal to the California courts of appeal beyond that. It will take years to determine. In the meantime, the Uber juggernaut will continue to roll on. So the real question will be: should we as a society welcome disruptive changes that upset our old models or should we use the old regulations to stymie them? Courts are not immune from such considerations and, as I see it, they will apply the legal standards in a way that takes the public policy strongly into account. It will be fascinating to see which way it goes.
I'm curious to read this argument. For all the hand wringing over Uber drivers as 1099 workers, they seem to be the very definition of contractors. They provide their own equipment, keep their own hours, NEVER have to work if they don't want to and 0 consequences for working or not working specific hours, etc. What is it about them that makes the employee like? Anyone know?
Edit: it appears that the critical factor they considered was whether or not the driver could have operated their business independently of Uber. They said they could not. They also cited the fact that Uber controls the way payments are collected and other aspects of operations as critical to showing employment. http://www.scribd.com/doc/268946016/Uber-v-Berwick
Edit: it appears that the critical factor they considered was whether or not the driver could have operated their business independently of Uber. They said they could not. They also cited the fact that Uber controls the way payments are collected and other aspects of operations as critical to showing employment. http://www.scribd.com/doc/268946016/Uber-v-Berwick
This is a good ruling for workers, but maintains society's status quo. That is, Uber has realized significant margin gains by pushing all risk of carrying passengers and car maintenance onto its drivers. Therefore, this risk is transferred to either drivers (who are on average mot equipped to handle this risk) or insurance companies (who pass the costs on to their entire insurance pool) and not borne directly by Uber nor its customer base. By classifying drivers as employees, risk becomes better aligned.
Now, what society is really missing out on is an opportunity or reason to transition from employer-based benefits to government or society-based benefits. This ruling will postpone a public discussion on the role of employer-based insurance and benefits.
Now, what society is really missing out on is an opportunity or reason to transition from employer-based benefits to government or society-based benefits. This ruling will postpone a public discussion on the role of employer-based insurance and benefits.
I wonder -- if Uber converted drivers in California to employees and dealt with the increased costs (passing them on to riders) but also prevented the now-employed drivers from driving with competing services (Lyft) -- whether the company wouldn't actually become even more valuable than they already are. If you are driving for both services but Uber comprises 80% of your volume and Lyft 20%, it's an easy decision to make. Given that the real asset for all these sharing economy companies is their elastic work forces (drivers and cars for Uber, residents and homes for Airbnb), the CLC may have just created an entrenched monopoly without realizing it.
Beyond that there is a really interesting debate as to whether sharing economy jobs are an end-run around minimum wage laws, rendering such laws meaningless for certain industries going forward. If the majority of workers are turned into 1099 consultants, but are doing effectively the same jobs (drivers, delivery people, etc) that employees did in the past, what does that mean for society?
Beyond that there is a really interesting debate as to whether sharing economy jobs are an end-run around minimum wage laws, rendering such laws meaningless for certain industries going forward. If the majority of workers are turned into 1099 consultants, but are doing effectively the same jobs (drivers, delivery people, etc) that employees did in the past, what does that mean for society?
Just to point out -- the California Labor Commission’s ruling is non-binding and applies to a single driver, it's not a class-action or applies to anyone else. Reports of the demise of Uber due to 'all partner drivers now being employees' is grossly exaggerated. Uber is also appealing. [disclosure: I work for Uber]
(see http://newsroom.uber.com/2015/06/clcstatement/)
(see http://newsroom.uber.com/2015/06/clcstatement/)
This was obvious from the beginning. There's really not the slightest doubt that all government authorities are going to classify Uber employees as employees, except perhaps a few that might be bribed/pressured into not doing so.
Uber controls every aspect of the business, from the fares charged (and how much profit Uber will take from each) to the route taken to the conditions of the vehicle to preventing subcontracting. It isn't even close or arguable. As the ruling points out, these people aren't independent drivers with their own businesses that just happen to have engaged in a contract with Uber, nor could Uber's business exist without them.
The short version:
http://www.irs.gov/uac/Employee-vs.-Independent-Contractor-%...
Uber controls every aspect of the business, from the fares charged (and how much profit Uber will take from each) to the route taken to the conditions of the vehicle to preventing subcontracting. It isn't even close or arguable. As the ruling points out, these people aren't independent drivers with their own businesses that just happen to have engaged in a contract with Uber, nor could Uber's business exist without them.
The short version:
http://www.irs.gov/uac/Employee-vs.-Independent-Contractor-%...
The right answer is that the "on demand economy" does not fit into existing labor structures, and trying to shoehorn these new jobs into current legal frameworks is probably doomed to confusion. This is especially complicated because, in the United States, too much of the social safety net is explicitly tied to employer-employee relationships (workers comp, unemployment, healthcare, etc).
What I want is confidence that somebody providing a service to me is provided these benefits - if you work 40 hours/week in "on demand" jobs, you should receive commensurate coverage from the safety net, and you should receive at least the mandated minimum wage. If you work 10 hours in a week, you should receive the pro-rated equivalents of those services. This is, of course, complicated - how do you account for people working two services at the same time, or the "uber on the couch" issue, or who pays for vehicles and other capital goods. But pretending that existing labor laws will cover the changing workforce is silly.
We hear all the time about how the nature of work, especially service work is changing. It seems like a logical consequence that the nature of how society classifies, supports, and regulates work should also change. Uber, et al, and their VC comrades have a huge opportunity to shape the future of how people work, and how the social safety net works - to effect real disruption.
Based on their actions, however, it is hard to conclude that Uber, et al are actually interested in this discussion, beyond the marketing rhetoric it enables. As far as I can tell, they view the friction between existing laws and their business model as a profit opportunity and not a leadership opportunity. And so the inefficient behemoth of government regulation will inevitably step in.
What I want is confidence that somebody providing a service to me is provided these benefits - if you work 40 hours/week in "on demand" jobs, you should receive commensurate coverage from the safety net, and you should receive at least the mandated minimum wage. If you work 10 hours in a week, you should receive the pro-rated equivalents of those services. This is, of course, complicated - how do you account for people working two services at the same time, or the "uber on the couch" issue, or who pays for vehicles and other capital goods. But pretending that existing labor laws will cover the changing workforce is silly.
We hear all the time about how the nature of work, especially service work is changing. It seems like a logical consequence that the nature of how society classifies, supports, and regulates work should also change. Uber, et al, and their VC comrades have a huge opportunity to shape the future of how people work, and how the social safety net works - to effect real disruption.
Based on their actions, however, it is hard to conclude that Uber, et al are actually interested in this discussion, beyond the marketing rhetoric it enables. As far as I can tell, they view the friction between existing laws and their business model as a profit opportunity and not a leadership opportunity. And so the inefficient behemoth of government regulation will inevitably step in.
I'm surprised that Uber discouraging their drivers to drive for other providers was not called out.
From what I understand, if you are an Uber driver and you do not accept a call too many times, Uber will simply stop giving you ride requests. This effectively squashes a driver's desire to drive for other networks because if he/she is busy with another network's ride when an Uber request comes in, he cannot accept it. Do that that some unknown number of times, and you don't get more work from Uber.
From what I understand, if you are an Uber driver and you do not accept a call too many times, Uber will simply stop giving you ride requests. This effectively squashes a driver's desire to drive for other networks because if he/she is busy with another network's ride when an Uber request comes in, he cannot accept it. Do that that some unknown number of times, and you don't get more work from Uber.
The ruling is not unexpected at all. After the ruling against Microsoft back in the 90s on contracting, it's pretty clear that a business needs to be very careful how they hire contractors, so that they don't become implicit employees. Google has to jump through hoops so that their contractors aren't considered employees (only work for 1 yr max, etc).
I'm curious how much this will affect Uber and what it will do to their business model. If I had to speculate, it would be that it becomes unprofitable almost instantly, but they do have a gigantic warchest, so maybe they can fight the ruling or figure out another way to classify their drivers.
Maybe they can advertise fares and jobs ("This person wants to be driven from SFO to Mountain View") and drivers bid on it like an auction. I wonder if that might change the equation? But then it means that drivers will have a lot more friction in the process.
I'm curious how much this will affect Uber and what it will do to their business model. If I had to speculate, it would be that it becomes unprofitable almost instantly, but they do have a gigantic warchest, so maybe they can fight the ruling or figure out another way to classify their drivers.
Maybe they can advertise fares and jobs ("This person wants to be driven from SFO to Mountain View") and drivers bid on it like an auction. I wonder if that might change the equation? But then it means that drivers will have a lot more friction in the process.
Just throwing a hypothetical out there. What if this sticks and the drivers decide to organize with a union and collectively bargain a living wage, benefits, etc?
What would be the value of Uber (and related businesses)? Would it stay in business even? How many VC's would lose fortunes over Uber going nearly to 0? Would this be the popping of what some suspect is a private equity bubble as the effects of this ripple throughout?
Regardless, it would be a very different business with a very different valuation.
What would be the value of Uber (and related businesses)? Would it stay in business even? How many VC's would lose fortunes over Uber going nearly to 0? Would this be the popping of what some suspect is a private equity bubble as the effects of this ripple throughout?
Regardless, it would be a very different business with a very different valuation.
The only problem I have with Uber is they get away with not having to compete on a level playing field.
I live in Sydney Australia and catch a fair few taxis.
That taxi diver I use has to pay many $100,000.00 to buy a taxi plate just to work (or work for someone who has bought such a plate), but the same Uber driver does not have such an overhead.
Also, that taxi has to pay insurance in case I'm injured while I'm in their cab, another cost the Uber driver does not have to cover with an insurance policy.
So government has to decide, does it want to eliminate those costs and make it a level playing field, making it an effective free for all.
But why politicians will never do that is because the first crash with the resulting insurance claim will bring the industry to it's knees and from that point on all hell will brake loose.
At present the politicians just don't want to make a decision because it is just a little too hard.
I live in Sydney Australia and catch a fair few taxis.
That taxi diver I use has to pay many $100,000.00 to buy a taxi plate just to work (or work for someone who has bought such a plate), but the same Uber driver does not have such an overhead.
Also, that taxi has to pay insurance in case I'm injured while I'm in their cab, another cost the Uber driver does not have to cover with an insurance policy.
So government has to decide, does it want to eliminate those costs and make it a level playing field, making it an effective free for all.
But why politicians will never do that is because the first crash with the resulting insurance claim will bring the industry to it's knees and from that point on all hell will brake loose.
At present the politicians just don't want to make a decision because it is just a little too hard.
Beekeeping analogy: both über and lyft are hives. The California Labor Commission's ruling does more to preserve hives in general (and thus the well-being of bees (drivers) as a whole), rather than any specific hive. Yeah, it's making things a little harder on one specific hive right now, but maybe this just means more hives will be popping up. It's the right call.
The phenomenon in nature is for bees to switch hives if theirs is in demise. "Any worker bee that is bringing in food is welcomed." [source: http://www.beemaster.com/forum/index.php?topic=8374.0]
The phenomenon in nature is for bees to switch hives if theirs is in demise. "Any worker bee that is bringing in food is welcomed." [source: http://www.beemaster.com/forum/index.php?topic=8374.0]
To be clear, this is not new regulation. This is a hearing that weighed the facts against the current set of laws as they are written. Under those laws, they're pretty clearly employees.
Changing the existing laws is a different issue entirely. There are serious pros and cons on both sides and the right answer is not obvious.
Changing the existing laws is a different issue entirely. There are serious pros and cons on both sides and the right answer is not obvious.
I think Uber can maybe weather this storm but I wonder how this will trickle down to the smaller personal service players like TaskRabbit/Caviar/Luxe etc who employ independent contractors.
Won't this mean that every single "employee" covered by this will have to file amended tax returns?
Drivers are just temporary anyway. Uber is going to be the company to beat when autonomous cars make Autos as a Service a huge business. I see that, and not some low-margin package delivery service, as the driver of their future growth.
From Uber:
> Reuters’ original headline was not accurate. The California Labor Commission’s ruling is non-binding and applies to a single driver. Indeed it is contrary to a previous ruling by the same commission, which concluded in 2012 that the driver ‘performed services as an independent contractor, and not as a bona fide employee.’ Five other states have also come to the same conclusion. It’s important to remember that the number one reason drivers choose to use Uber is because they have complete flexibility and control. The majority of them can and do choose to earn their living from multiple sources, including other ride sharing companies.
> Reuters’ original headline was not accurate. The California Labor Commission’s ruling is non-binding and applies to a single driver. Indeed it is contrary to a previous ruling by the same commission, which concluded in 2012 that the driver ‘performed services as an independent contractor, and not as a bona fide employee.’ Five other states have also come to the same conclusion. It’s important to remember that the number one reason drivers choose to use Uber is because they have complete flexibility and control. The majority of them can and do choose to earn their living from multiple sources, including other ride sharing companies.
Isn't Uber concept similar to AirBnB ? DOes this mean AirBnB users are also at risk of being classified as employees of Airbnb ? Uber, you drive your own car. Airbnb, you rent your own apartment.
This makes all the R&D into driverless cars worth it. Driverless cars can't be employees.
You all downvoted my comment three weeks ago: Uber is constantly trying to run from the law but eventually the law will catch up with them and finish this farce. Good.
Well, there you have it.
Well, there you have it.
If this sticks, it just means that Uber drivers will get paid less in cash, more in benefits, and lose the ability to take business tax deductions.
Is that really better for the drivers? Sounds worse to me.
I ask because many people have been claiming Uber is a bad actor for making drivers contractors, but it's not clear to me that it's a big win for the drivers to be classified as employees. Actually it seems worse in many ways.
Is that really better for the drivers? Sounds worse to me.
I ask because many people have been claiming Uber is a bad actor for making drivers contractors, but it's not clear to me that it's a big win for the drivers to be classified as employees. Actually it seems worse in many ways.
Reuters and Techcrunch may have jumped the gun here. This ruling only applies to a single driver. Reuters has updated their headline accordingly now: http://www.reuters.com/article/2015/06/17/us-uber-california...
Uber's response:
"Reuters’ original headline was not accurate. The California Labor Commission’s ruling is non-binding and applies to a single driver. Indeed it is contrary to a previous ruling by the same commission, which concluded in 2012 that the driver ‘performed services as an independent contractor, and not as a bona fide employee.’ Five other states have also come to the same conclusion. It’s important to remember that the number one reason drivers choose to use Uber is because they have complete flexibility and control. The majority of them can and do choose to earn their living from multiple sources, including other ride sharing companies.'
Uber's response:
"Reuters’ original headline was not accurate. The California Labor Commission’s ruling is non-binding and applies to a single driver. Indeed it is contrary to a previous ruling by the same commission, which concluded in 2012 that the driver ‘performed services as an independent contractor, and not as a bona fide employee.’ Five other states have also come to the same conclusion. It’s important to remember that the number one reason drivers choose to use Uber is because they have complete flexibility and control. The majority of them can and do choose to earn their living from multiple sources, including other ride sharing companies.'
– Uber spokeswoman[deleted]
[deleted]
Uber and Lyft are operating a model that clearly works for customers. And yet they rightly face legal issues.
The thing that perplexes me is that existing taxi companies, who are licensed and otherwise compliant with the law, don't adopt the best parts of Uber and Lyft?
Why can't I call a black cab in London the way I call a ride from Uber?
The thing that perplexes me is that existing taxi companies, who are licensed and otherwise compliant with the law, don't adopt the best parts of Uber and Lyft?
Why can't I call a black cab in London the way I call a ride from Uber?
This is going to put a knife into a lot of 'modern' start-ups. The theme where the company sets the prices, controls the payments and so on and where the people doing the work are contractors without employee protection or benefits applies to many of the business models of the new middle men.
I tend to agree with Uber here: http://newsroom.uber.com/2015/06/clcstatement/
I don't think this ruling will have much of an impact on anything.
I don't think this ruling will have much of an impact on anything.
What are the impacts to Uber if drivers are employees?
The regulations on taxi drivers exist for a reason. Uber found a way to skirt some of those regulations for a time. Avoiding that regulation created a revenue stream that they used to operate and grow. It was always in danger of regulators catching up to them.
If you read some of the driver's reports then it becomes hard to really buy their "big taxi" schtick. That being said, they obviously provided something that people want. Taxi companies will have to adjust to this. (In some places like SF they already are.) In the end, I think that Uber will go the way of Napster and the taxi companies will end up adopting their techniques the way that the big record companies did.
If you read some of the driver's reports then it becomes hard to really buy their "big taxi" schtick. That being said, they obviously provided something that people want. Taxi companies will have to adjust to this. (In some places like SF they already are.) In the end, I think that Uber will go the way of Napster and the taxi companies will end up adopting their techniques the way that the big record companies did.
1) Drivers providing their own cars is not a strong factor - pizza delivery employees also drive their own cars.
2) Uber "control the tools that drivers use" by regulating the newness of the car.
3) Uber exercises extensive control over vetting and hiring drivers and requires extensive personal information from drivers.
4) Uber alone sets prices, and tipping is discouraged, so there is no mechanism for driver (as "contractor") to set prices.
5) Plaintiff driver only provided her time and car. "Plaintiff's work did not entail any 'managerial' skills that could affect profit or loss."
6) Drivers cannot subcontract (presumably negating Uber's position as a "lead generation" tool for contractors).
Sorry that these are out of order. Look on Page 9 of court documents for full text.