July 16, 2015, Trial News
Plaintiffs notch three victories in employment misclassification battle
Alyssa E. Lambert
For several years, there has been an ongoing tug-of-war between companies such as Fed Ex and Uber Technologies, Inc., and their workers, who argue that they are classified improperly as independent contractors instead of employees, depriving them of certain rights and benefits. Several recent cases against these companies indicate that the pendulum may be swinging in the workers’ favor.
For several years, there has been an ongoing tug-of-war between companies such as Uber Technologies, Inc., and their workers, who argue that they are classified improperly as independent contractors instead of employees, depriving them of certain rights and benefits. A recent California Labor Commission ruling against Uber, a Seventh Circuit decision against FedEx ruling it misclassified its drivers as independent contractors, and a settlement between FedEx Ground Package System, Inc., and thousands of its delivery drivers over similar misclassification claims indicate that the pendulum may be swinging in the workers’ favor. Attorneys say these and other recent decisions are forcing companies to reconsider how they label their “employees.”
Independent contractors are considered self-employed, so they must purchase and maintain their own equipment, are not protected by rules governing minimum wage and overtime pay, are not eligible for health and retirement benefits, and must pay both employer and employee payroll taxes.
In September 2014, Barbara Berwick, who drove for Uber in San Francisco, filed a complaint with the California Labor Commission alleging the company owed her overtime wages and reimbursement of mileage and tolls. At the hearing in March, Uber claimed Berwick was an independent contractor and not entitled to recover those expenses.
The hearing officer, Stephanie Barrett, was not swayed by Uber’s argument that Berwick and its other drivers were independent contractors because the company exerted very little control over their activities. She concluded that Uber is “involved in every aspect of the operation,” from vetting drivers, to controlling the cars they can use, to providing them with iPhones to operate the Uber application. It can even remove drivers from service if customers give them a low rating. (Berwick v. Uber Tech., Inc., No. 11-46739 EK (Cal. Labor Comm’n June 3, 2015).)
Barrett conducted a two-part independent contractor/employee analysis that California state and federal courts typically use. She concluded that Berwick and other drivers are Uber’s employees because they “perform services” for the company’s benefit, which satisfies the first prong of the analysis. Under the next prong, the burden shifts to the employer to prove that the employee was an independent contractor. To make this determination, California courts have followed S.G. Borello & Sons, Inc. v. Dep’t of Indus. Relations (769 P.2d 399 (Cal. 1989)), in which the California Supreme Court enumerated many criteria that focus on a company’s “right to control” an alleged employee. After examining the Borello factors, Barrett concluded that Uber did not meet its burden and that the drivers are employees.
Uber was ordered to pay Berwick more than $4,100 for mileage and tolls. The decision was not released to the public until Uber filed an appeal with the Superior Court of California two weeks later.
This is not the first regulatory agency or court to rule against Uber. Earlier this year, Florida’s unemployment agency ruled that Uber drivers are employees. In March, two federal judges in California green-lighted two class actions against Uber and Lyft, Inc., another ride-sharing company that classifies its drivers as independent contractors rather than employees. The court denied the defendants summary judgment, ruling that the issue should go before a jury, as Trial News previously reported. (O’Connor v. Uber Tech., Inc., 2015 WL 1069092 (N.D. Cal. Mar. 11, 2015); Cotter v. Lyft, Inc., 2015 WL 1062407 (N.D. Cal. Mar. 11, 2015).)
Boston attorney Shannon Liss-Riordan, who represents the plaintiffs in O’Connor and Cotter, said that the extent of the ruling’s impact on her clients is unclear at the moment. But the O’Connor plaintiffs have cleared another hurdle—in June, Judge Edward Chen denied Uber’s motion to compel mandatory arbitration, concluding that the arbitration clause was invalid. Lyft has not tried to invoke its arbitration provision. Class certification hearings in both cases are scheduled for October and December.
Liss-Riordan said the ruling “sends a very strong message that this misclassification issue is being taken seriously, and the fact that a state agency charged with enforcing these laws came to this conclusion is very significant. . . . When a factfinder sat down and looked at the evidence, it found Uber was acting as an employer,” she said.
That message seems to be reverberating elsewhere. Last week, the Seventh Circuit ruled FedEx also misclassified its drivers and that they are employees; the company forced them to buy their own uniforms and equipment and also controlled specific details of their behavior and appearance. The case is one of about 70 pending in the Northern District of Indiana as part of a federal MDL. (Craig v. FedEx Ground Package Sys., Inc., 2015 WL 4099853 (7th Cir. July 8, 2015).)
In mid-June, FedEx announced it has agreed to pay $227 million to about 2,300 California drivers who filed class actions against the company. The settlement comes nearly a year after the Ninth Circuit held that FedEx improperly labeled its delivery drivers as independent contractors rather than employees, as Trial News previously reported. The rulings revived almost 2,700 class action claims brought by California and Oregon drivers. The Oregon cases are still pending.
Liss-Riordan said the wave of litigation and decisions may be influencing other business owners too. “Some business owners have been making public statements that they are going to convert from an independent contractor to an employee model, and I hope that is the beginning of the change in the tide on this issue,” she said.