Uber identifies itself as a tech company which developed an app to connect livery car drivers with a network of registered users in need of rides. Whenever a connection is made and a service is provided, Uber collects a 20% fee. However, some fail to see the difference between Uber and a cab company in the business of providing transportation services. In particular, a group of Uber drivers believe that they are in fact employees of Uber and should be treated accordingly.
Currently Uber treats drivers as independent contractors, does not reimburse them for business expenses and extends the reach of its 20% fee all the way to their tips. A federal judge in San Francisco has allowed a class action lawsuit disputing these practices to go forward.
Uber has argued that it merely facilitates connections and the drivers choose their own hours, service territory and job acceptance, as well as provide their own vehicle and get paid by the job. The drivers respond that they are employees because they have prescribed rules they must follow or face termination.
When it comes to employee classification, the question is essentially one of control. The IRS describes three characteristics it uses to determine the relationship between businesses and workers:
- Behavioral Control covers facts that show whether the business has a right to direct or control how the work is done through instructions, training or other means.
- Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker’s job.
- The Type of Relationship factor relates to how the workers and the business owner perceive their relationship.
Additional guidance regarding whether a worker will be classified as an employee versus an independent contractor is contained in Revenue Ruling 87-41, which provides the following twenty factor test:
- Is the worker required to comply with instructions about when, where and how the work is done?
- Is the worker provided training that would enable him/her to perform a job in a particular method or manner?
- Are the services provided by the worker an integral part of the operations?
- Must the services be rendered personally?
- Does the business hire, supervise, or pay assistants to help the worker on the job?
- Is there a continuing relationship between the worker and the person for whom the services are performed?
- Does the recipient of the services set the work schedule?
- Is the worker required to devote his/her full time to the person he/she performs services for?
- Is the work performed at the place of business of the company or at specific places set by the company?
- Does the recipient of the services direct the sequence in which the work must be done?
- Are regular oral or written reports required to be submitted by the worker?
- Is the method of payment hourly, weekly, monthly (as opposed to commission or by the job?)
- Are business and/or traveling expenses reimbursed?
- Does the company furnish tools and materials used by the worker?
- Has the worker failed to invest in equipment or facilities used to provide the services?
- Does the arrangement put the person in a position of realizing either a profit or loss on the work?
- Does the worker perform services exclusively for the company rather than working for a number of companies at the same time?
- Does the worker in fact make his/her services regularly available to the general public?
- Is the worker subject to dismissal for reasons other than non-performance of the contract specifications?
- Can the worker terminate his/her relationship without incurring a liability for failure to complete the job?
A “yes” answer to any the above questions may indicate the worker is an employee (except question 16, for which a no answer indicates that the worker may be an employee). Fortunately, no single answer is determinative, since practically all independent contractors will fail at least one of the tests.
Entities who are making assessments of worker classification should pre-emptively assemble the underlying data that forms the basis for their conclusion in anticipation of being challenged and to demonstrate that the assessment was made in good faith. If the Uber drivers win their claim, they may be entitled to additional pay and/or benefits based on wage and hour laws. Damage awards can be substantial and often are sufficiently complex to require expert analysis.