The New ‘Gig Economy’: Uber Litigation and Its Impact on Independent Contractors

By NJSBA Staff posted 11-14-2018 09:41

  
The following piece was originally published in the Labor and Employment Law Quaterly, a publication of the New Jersey State Bar Association Labor and Employment Law Section. To read the entire publication, you can join the section.

By Joshua Garland and Timothy D. Cedrone 

Welcome to America’s new ‘gig economy,’ where more and more people are foregoing the traditional nine-to-five job to set their own schedule by working for companies like Uber Technologies, Inc.These gig workers make up an estimated 34 percent of the current workforce.And that percentage is expected to rise. However, with new areas of employment come new legal issues that need to be addressed. One of the most pertinent of these is whether these gig workers, specifically Uber drivers, are employees or independent contractors under the Fair Labor Standards Act (FLSA).How Uber drivers are classified directly impacts their compensation. Currently, Uber considers its drivers to be independent contractors, not employees.And because of that classification, Uber drivers are not compensated for the time they are on call, waiting for potential riders.

This article discusses two of the aforementioned new legal issues that need to be addressed. The first issue of driver classification is examined through a discussion of the single Third Circuit case. The second related issue is whether Uber drivers should be treated as employees, requiring Uber to compensate them for their on-call time.

Employee or Independent Contractor?
Since the Third Circuit case Donovan v. DialAmerica Marketing, Inc., six factors have been used to determine whether a worker is an ‘employee’: 1) the employer’s right to control the work; 2) the employee’s opportunity for profit or loss; 3) the employee’s investment in materials required to do the task; 4) whether the service rendered requires a special skill; 5) the degree of permanence of the working relationship; and 6) whether the
service rendered is integral to the employer’s business.This test, colloquially known as the ‘economic realities test,’ examines the “circumstances of the whole activity,” focusing mainly on economic dependence.If, based on these factors, the worker is found to be economically dependent on the employer, the worker is considered an employee for FLSA purposes.7 

Only one court in the Third Circuit has had the opportunity to apply the Donovan factors to Uber drivers. In Razak v. Uber Techs., Inc., a putative class action lawsuit was brought by Uber drivers in Philadelphia on this very issue. Claiming they were misclassified as independent contractors, the plaintiffs successfully defeated a motion to dismiss by arguing an employee-employer relationship was plausible under the Donovan factors.8
Specifically, they alleged the control, special-skill, and integral-to-the-business factors weighed in favor of employee status. The control factor was
adequately pled because the plaintiffs alleged that Uber “control[s] the number of fares each driver receives,” has “authority to suspend or terminate a driver’s access to the App,” drivers “are not permitted to ask for gratuity,” and drivers “are subject to suspension or termination
if they receive an unfavorable customer rating.”The special-skill factor was satisfied because the plaintiffs alleged that, to serve as drivers, they “must undergo PPA training, testing, examination, a criminal background check and driving history check.”10 And drivers are integral to the business (factor six) because Uber’s business is to “provide on-demand car services to the general public,” and “drivers perform on-demand transportation services for defendants.”11

Although the court found there could be an employee-employer relationship based on those allegations, it is important to note that the standard of review required the court to take all well-pleaded facts as true. This was not a declarative ruling in favor of employee status, but rather a step in the legal process for this case to continue. And continue it has.

The court granted, in part, Uber’s motion to dismiss, but allowed the drivers to file an amended complaint. After the drivers filed the amended complaint, Uber again moved to dismiss.12 The court then denied the motion to dismiss the amended complaint in its entirety, allowing the parties to proceed to discovery. Following a substantial amount of discovery, Uber moved for partial  summary judgment on the limited issue of compensability of Uber drivers’ online, or on-call time.13

On-Call Time in the Third Circuit
The Third Circuit uses a four-factor test to determine whether on-call time is compensable. The factors are: 1) “whether the employee may carry a beeper or leave home”; 2) “the frequency of calls and the nature of the employer’s demands”; 3) “the employee’s ability to maintain a flexible on-call schedule and switch on-call shifts”; and 4) “whether the employee actually engaged in personal activities during on-call time.”14 If these factors reveal that being on-call significantly interferes with the employee’s personal life, the time is compensable.15

The Razak court was reluctant to make any definitive rulings based on this test.16 Such antiquated factors, like whether or not the employee carries a beeper, are “not readily applicable to…the new ‘gig economy.’”17 However, the court did analyze the fourth factor, as in to what extent the employee’s ability to engage in personal activities is restricted.18 Four “undisputed factual issues” shaped the analysis. First, “[d]rivers have at most 15 seconds to accept a trip request from a rider which, if not accepted, will be deemed rejected.”19 Second, “[i]f a driver does not accept three trip requests in a row, the Uber App automatically switches the driver from Online to Offline.”20 Third, “[t]he rider’s destination is not disclosed to the driver until the rider’s trip begins.”21 Fourth, exclusive to drivers in Philadelphia, “[d]rivers may only advance in the queue at the [Philadelphia International] Airport or 30th Street Train Station if within a certain zone, and may only accept trip requests at the Airport if inside the west parking lot.”22

These were found to reasonably restrict a driver’s ability to engage in personal activities.23 In order to respond to a given trip request in only 15 seconds, drivers are essentially “required by Uber to be tethered to their phones.”24 In addition, the threat of being switched offline after ignoring three trip requests can be “considered a severe restriction on their ability to engage in personal activities,” especially during periods
of frequent requests.25 And because drivers do not know where the destination is before the ride is accepted, they are not truly in control of their time.26

The court denied the partial summary judgment motion on these grounds.27 The court found that this issue should be articulated on a factual record before a  jury, subject to the Rules of Evidence and a developed trial record, so a proper ruling could be had.28

The Razak Court Rules
The various motion rulings in Razak all appeared to be trending toward the plaintiffs being able to defeat the inevitable summary judgment motion. Then, on April 11, the Eastern District Court of Pennsylvania became the first to grant summary judgment on this question of
employee status.29 Unfortunately for Uber drivers, the court determined they were independent contractors, not employees.30

The court reached this decision after analyzing each of the Donovan factors. The first factor—control—weighed in favor of independent contractor status. Even though Uber exercises some control over its drivers, the court compared that relationship to that of a homeowner and a carpenter.31 While the homeowner may impose conditions on the carpenter, they only apply while the carpenter is in the home, which is insufficient to establish employee status. Likewise, the conditions imposed on Uber drivers only apply when they are logged into the app.

The second factor of opportunity for profit or loss also weighed in favor of independent contractor status.32 The court could not ignore the amount of freedom each driver could exercise. By being able to work wherever, whenever and however long they wanted, the court held that the drivers themselves had the most influence on their profits and losses.

Third, the investment factor favored independent contractor status as well.33 The plaintiffs’ conceded as much—they purchase their own vehicles after all. The court did not spend much time discussing this factor.

The fourth factor—special skill—was one of only two factors, according to the court, to favor employee status.34 While driving itself is not a special skill, Uber drivers do more than simple delivery drivers. They must replicate the limousine experience, maintain a high level of customer service, and are subject to a number of ‘requirements’ and ‘limitations’ in order to achieve success.

The court found the fifth factor—permanence—weighed heavily in favor of independent contractor status.35 The only real argument the plaintiffs advanced against this was that they worked for Uber for years and for “many hours a week.” However, their length of employment does not change the fact that they could stop working for Uber whenever they wanted.

The sixth and final factor—integrality of service—was the other factor to favor employee status.36 Uber simply could not exist without drivers.

Because four of the six factors were found to favor independent contractor status, the court granted summary judgment. With that ruling, drivers’ hopes of being compensated for on-call time may fade away as well. However, this story is far from over since, as of this writing, the plaintiffs’ appeal before the Court of Appeals for the Third Circuit is still pending.

The Future of On-Call Time for Uber Drivers
The Razak court noted that the case was but one of many across the country involving the compensability of on-call time for Uber drivers.37 Given the unsettled status of these claims and the potential for different outcomes depending on the facts of each case, it may be a fool’s errand to predict what the outcome of these cases will be and whether a uniform rule will emerge. However, at least within the Third Circuit, a few conclusions can be drawn at this point. First, the time when Uber drivers are considered independent contractors may be coming to a swift end. If more courts (and the Third Circuit in particular) adopt the same analysis as the district court in Razak, employee status may be an inevitable reality for Uber and their drivers. Relatedly, if the plaintiffs prevail before the Third Circuit and Uber drivers are deemed employees for FLSA purposes, Razak will provide a clear roadmap to how their on-call time can be found compensable. Finally, if a jury were to hear the case following a remand from the Third Circuit, it is plausible, if not likely, that the drivers will prevail and their on-call time will be found compensable. Of course, the case could still settle and, in that situation, Uber will be able to preserve the argument that the drivers are independent contractors while simultaneously buying itself time to modify its on-call system to potentially avoid FLSA problems going forward. Either way, the
outcome of Razak will not be the end of the story.

Conclusion
If Razak reveals anything, it is that the gig economy will continue to present new issues for employment law practitioners. Likewise, courts will be forced to update antiquated multi-factor tests to account for the obsolescence of old technologies and the emergence of new technologies. Time will tell if Uber can navigate its way through the myriad FLSA cases it is defending. Regardless of those cases’ outcomes, they could frame how the FLSA develops and is applied in the new gig economy.

Joshua Garland is a student at Rutgers Law School and a member of the Class of 2019. Timothy D. Cedrone is an associate general counsel at Rutgers University and an adjunct professor at Seton Hall University. The opinions expressed herein are the authors’ own and do not represent the opinions of any university or other institution with which either author may be associated.

Endnotes
1. The Top 10 Facts You May Not Know About Uber Driver Partners, Uber.com, available at https://newsroom.uber.
com/the-top-10-facts-you-may-not-know-about-uber-driver-partners/. According to Uber, 73% of drivers confirm
this exact sentiment.
2. Patrick Gillespie, Intuit: Gig economy is 34% of US workforce, CNN.com (May 24, 2017), available at http://
money.cnn.com/2017/05/24/news/economy/gig-economy-intuit/index.html?iid=EL.
3. 29 U.S.C.S. § 201 et seq.
4. See Razak v. Uber Techs., Inc., 2017 U.S. Dist. LEXIS 148087, *32-36 (E.D. Pa. Sept. 13, 2017) (discussing other
FLSA cases against Uber).
5. Donovan v. DialAmerica Marketing, Inc., 757 F.2d 1376, 1382-83 (3d Cir.) (citations omitted), cert. denied, 474 U.S.
919 (1985).
6. Id. at 1382.
7. Id. at 1387.
8. Razak v. Uber Techs., Inc., 2016 U.S. Dist. LEXIS 139668, *12-13 (E.D. Pa. Oct. 7, 2016).
9. Id.
10. Id.
11. Id.
12. Razak v. Uber Techs., Inc., 2016 U.S. Dist. LEXIS 173351, *5-6 (E.D. Pa. Dec. 14, 2016).
13. Razak, 2017 U.S. Dist. LEXIS 148087.
14. Ingram v. Cty. of Bucks, 144 F.3d 265, 268 (3d Cir. 1998).
15. Id.
16. Razak, 2017 U.S. Dist. LEXIS 148087, at *42.
17. Id.
18. Id. at *43-44.
19. Id. at *43.
20. Id.
21. Id.
22. Id. at *44.
23. Id. at *45.
24. Id.
25. Id.
26. Id.
27. Id. at *46-47.
28. Id. at *46.
29. Razak v. Uber Techs., Inc., 2018 U.S. Dist. LEXIS 61230, *2 (E.D. Pa. April 11, 2018).
30. Id.
31. Id. at *43.
32. Id. at *44-47.
33. Id. at *48-49.
34. Id. at *50-51.
35. Id. at *51-53.
36. Id. at *53-54.
37. Id. at *26-34.

Permalink