To add insult to their injury, Uber and Lyft drivers in San Francisco will soon receive notifications from the San Francisco City Treasurer’s Office, demanding they pay a $91 annual business license fee if they drove in the city for seven days or more each year. However, not only will the drivers be required to pay the fee for this year, but they will also be charged retroactively for any previous years they did not pay for a business license, pluspenalties and interest. Taking its corporate responsibilities quite seriously, Uber provided a sober response to the announcement: “Uber partners with entrepreneurial drivers and as independent contractors, they are responsible for following appropriate local requirements.” Ah-hem.Uber drivers have filed a class-action lawsuit in California federal court (O’Connor v. Uber Technologies, Inc.) alleging that Uber misclassified drivers as independent contractors, rather than employees. Being misclassified as independent contractors, the lawsuit contends, the drivers are required to pay their own business expenses, such as for their vehicles, gas, and maintenance, in violation of California Labor Code Section 2802. California law requires employers to reimburse employees for such expenses, which are for the benefit of the employer and are necessary for the employees to perform their jobs. In the Second Amended Complaint of the lawsuit, the drivers set forth facts which courts routinely consider when making the independent contractor/employee determination: “Although classified as independent contractors, Uber drivers are employees. They are required to follow a litany of detailed requirements imposed on them by Uber and they are graded, and are subject to termination, based on their failure to adhere to these requirements (such as rules regarding their conduct with customers, the cleanliness of their vehicles, their timeliness in picking up customers and taking them to their destination, what they are allowed to say to customers, etc…) In addition, Uber is in the business of providing car service to customers, and that is the service that Uber drivers provide. The drivers’ services are fully integrated into Uber’s business, and without the drivers, Uber’s business would not exist.” The drivers have further contended that Uber could terminate them if they did not accept a certain number of passengers. Uber countered that, even given its ability to terminate the drivers, Uber did not control the drivers, but rather, only provided a platform, or referral service, to connect drivers and passengers–even though the drivers are an integral part of its service.
Money is at stake for Uber in the lawsuit. If the drivers are found to be employees, rather than independent contractors, Uber will be responsible for paying the drivers at least minimum wage, reimbursement for expenses, overtime, and other benefits. That could add up to a significant sum of money. As of December 2015, Uber had more than 160,000 active drivers in 161 cities. The class-action lawsuit against Uber is set to go for a five-week trial beginning on June 20, 2016. The outcome of the lawsuit has far-reaching monetary ramifications not only for Uber, but also for companies like it that provide on-demand digital platforms (Lyft, Handy, Postmates, and Door Dash).
The contractor/employee classification dilemma reaches into federal sector employment issues, as well. Federal agencies often hire contractors instead of full-time employees to perform the work. When issues arise concerning potential discrimination under Title VII of the Civil Rights Act of 1964, it seems that both the contracting agency and the federal agency want to disclaim an employment connection to the worker. Title VII declares it is an unlawful employment practice for an employer “to fail or refuse to hire or to discharge any individual, or otherwise to discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s race, color, religion, sex, or national origin.” Title VII defines an employee as “an individual employed by an employer.” In a case arising under a statute with an identical definition of “employee” (the Employee Retirement Income Security Act of 1974 (ERISA)), the Supreme Court noted in Nationwide Mutual Insurance Company v. Darden that this definition of “employee” is “completely circular and explains nothing.” Finding no help from Congress in this definition devoid of actual meaning, the Supreme Court adopted the common law of agency test for determining who qualifies as an employee under ERISA.
Borrowing from Darden, the Equal Employment Opportunity Commission adopted the common-law agency test to determine whether an individual is an agency employee versus a contractor. Ma v. Dep’t of Health and Human Servs. The common-law agency test considers “all of the incidents of the relationship between the appellants and the agency.” In the EEOC Compliance Manual, the Commission set forth factors which essentially mirror those of the common-law agency test that indicate a worker is in an employment relationship with an employer, including the following:
- The employer has the right to control when, where, and how the worker performs the job.
- The work does not require a high level of skill or expertise.
- The employer furnishes the tools, materials, and equipment.
- The work is performed on the employer’s premises.
- There is a continuing relationship between the worker and the employer.
- The employer has the right to assign additional projects to the worker.
- The employer sets the hours of work and the duration of the job.
- The worker is paid by the hour, week, or month, rather than the agreed cost of performing a particular job.
- The worker does not hire and pay assistants.
- The work performed by the worker is part of the regular business of the employer.
- The worker is not engaged in his/her own distinct occupation or business.
- The employer provides the worker with benefits such as insurance, leave, or workers’ compensation.
- The worker is considered an employee of the employer for tax purposes (i.e., the employer withholds federal, state, and Social Security taxes).
- The employer can discharge the worker.
- The worker and the employer believe that they are creating an employer-employee relationship.
These same criteria apply when determining whether an individual is jointly employed by the federal agency and the contracting company. “A determination of joint employment requires an examination of the amount and type of control the staffing firm and the agency each maintain over the Complainant’s work, whether or not the individual is on the federal payroll.” Baker v. Dep’t of Army. “For example, the Agency is an employer of the Complainant if it supplies the work space, equipment, and supplies, and if it has the right to control the details of the work performed, to make or change assignments, and to terminate the relationship.” EEOC’s Enforcement Guidance: “Application of EEO Laws to Contingent Workers Placed by Temporary Employment Agencies and Other Staffing Firms.”
In the March 2016 edition of the EEOC’s Digest of Equal Employment Opportunity Law, the Commission noted the following recent cases in which it found joint employment:
- Cortez J. v. Dep’t of Navy:Even though the staffing firm completed Complainant’s performance appraisal, the Agency provided input for the appraisal, and had significant input into the decision to terminate Complainant.
- Letty K. v. Dep’t of Defense: While the Agency did not provide Complainant with retirement benefits or leave, or pay social security taxes, the Agency maintained the ability to terminate Complainant.
- Nannette T. v. Dep’t of Army: Although the contractor provided Complainant with her leave and benefits and withheld taxes, and Complainant referred to herself as a contractor, she performed duties related to military intelligence in a top-secret Agency facility, using tools, equipment, and materials provided by the Agency.
- Jesse R. & Arthur F. v. Dep’t of Justice: Notwithstanding that the Complainants worked on premises provided by the staffing firm, performed work requiring a high level of expertise, and received wages and benefits from the staffing firm, the record showed that an Agency manager routinely assigned one Complainant projects and duties, and dictated the other Complainant’s schedule, travel, and contacts.
Cases in which the Commission found the individual was a contractor, and thus not jointly employed with a federal agency, include:
- Jared F. v. Dep’t of Defense: Even though the Complainant used equipment provided by the Agency, and he had worked on the Agency’s premises for 15 years, his position did not require a high level of skill or expertise, nor was he supervised by Agency staff or compensated by the Agency.
- Erick N. v. Nuclear Regulatory Comm’n: The Agency’s staff gave Complainant his assignments, designated his hours and where his work was performed, and provided him with the tools and equipment needed to perform his duties. The staffing firm, though, handled Complainant’s pay and benefits. After the Complainant had an altercation with an Agency employee, the Agency asked the staffing firm to find a resolution other than to terminate the Complainant. In response, the staffing firm conducted its own investigation, and decided to reassign Complainant to other clients. The Commission regarded this as an indication that the staffing firm retained full power over the Complainant’s employment and significant enough to deem him a contractor, rather than an Agency employee.
- Aracely J. v. Dep’t of Navy: Although the Complainant performed work at an Agency work space, using Agency equipment, the Complainant was supervised by an employee of the contractor. Additionally, in finding that the individual was a contractor, the Commission relied on the fact that the contract between the Agency and the contractor provided that the contractor was responsible for developing the framework for the program, providing training, and ensuring that personnel completed all necessary functions.
As these cases show, the contractor/employee classification is not always self-evident, but the classification determinations tend to have serious consequences for all parties involved. Unfortunately, it is the workers in these “grey areas” who find themselves at the greatest peril of erroneous classifications, not only in terms of losing the benefits afforded to those classified as employees, but also with regard to not being afforded the same legal protections as employees.
This article was written by Valerie Chastain.