Classifying Employees

By Drew M. Smith

Vol. 1 June 2015

As the economy continues to recover, many new businesses have cropped up to take on the new job market. Two of these companies that have cropped up are Uber and Lyft, the much-maligned taxi service companies that are now in competition with local taxi services.

Their business models are simple. They use what is termed on-demand labor, meaning the drivers they hire are not necessarily contracted to Uber or Lyft. They can work the jobs as full-time drivers, part-time or even be a side job. The business relies on classifying the drivers as independent contractors and not as employees. They do not get benefits and have separate 1099 tax forms to file their taxes.

The main issue is whether or not these companies have any right to control these drivers by classifying them as contractors. Two lawsuits in California, Douglas O’Conner, et all v. Uber Technologies, Inc. (Uber Court) and Patrick Cotter, et al. v. Lyft, Inc. (Lyft Court) are attempting to answer this question. In both cases, the plaintiffs claimed they were misclassified as contractors not employees.1

The issue of classification is not just limited to these companies. Other more traditional employers have faced the same issue. They have classified employees as a certain class such as supervisors. Under pressure, they were forced to reclassify them as employees to correct the issues brought up.

The lawsuits center on the plaintiffs claiming that Uber was ordering them to charge a certain amount and threatened them with termination if they didn’t comply. Based on this premise, both plaintiffs argue they should be treated as employees; something that if the courts rules with them, could severely impact the business models of both Uber and Lyft.2 The two companies argued they have no contractual obligation to control them because they can work as often as they wanted and such should be classified as independent contractors. Further, since most drivers work part time, have other jobs, and work when they want to, the companies argue they don’t control their drivers.

Both cases have been to the jury and they are asking essentially the same question; should the drivers be classified as independent contractors or employees? By essentially not keeping them on the payroll and not giving them benefits they are seen as contractors. However, telling them what to do, what to charge and threatening to terminate them makes it look like they are employees.

While the Lyft case is pending, recently the Uber case has ruled in favor of the plaintiff classifying her as an employee. Though the settlement was small, only $4,000, and applies to this case only, if other cases rule the same way, Uber could face a serious blow to their business model.3 We will continue to monitor the progress of these cases and keep you up to date.

1Plus Journal June 2015, Davilin and Pham, Pg. 1, 10-12
2http://www.forbes.com/sites/ellenhuet/2015/03/11/lyft-uber-employee-jury-trial-ruling/
3http://www.nbcnews.com/tech/innovation/uber-drivers-are-employees-not-contractors-california-labor-commission-n377031

The opinions in this article are solely the author’s and do not constitute legal advice.

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