Steven Davidoff Solomon writes for The New York Times, September 15, 2015
A dispute in California over whether Uber’s drivers are employees or contractors shows that labor laws that were passed decades ago just don’t work in the smartphone world.
But it’s not just about the workplace. This litigation is becoming a Rorschach test for people’s views of the sharing economy and whether it is a force for good — or for exploitation.
Or to put it another way, you know people have strong feelings about you when you are heckled at a taping of “The Late Show With Stephen Colbert,” which is what happened last week to Uber’s chief executive.
In the California case, a law firm based in Boston led by Shannon Liss-Riordan has brought a class-action lawsuit against Uber, contending that its drivers are illegally paid as independent contractors and not employees.
As with most disputes, this one is about the money. If Uber’s drivers are employees, then they are entitled to the benefits that go with such classification, such as unemployment insurance and overtime, that are not required to be bestowed upon independent contractors.
Uber’s critics say the company is exploiting workers by not paying the benefits of employment. The sharing economy, some of them say, is doomed to further enhance inequality in the United States. Uber would appear to be another example of how the average worker in America, particularly the unskilled one, can no longer make a living wage or even get a real job.
Uber and its supporters, however, contend that its drivers want this system. Uber is a technology service for matching drivers and customers and therefore is a middleman no different from, say, eBay or Etsy.
With Uber, drivers are independent contractors who pay 20 percent of the fare to the company. The drivers pay all their expenses and receive no benefits, like health insurance or unemployment benefits. But in exchange, they don’t need to show up if they don’t want to, don’t have set hours and are basically their own bosses. From this perspective, Uber is empowering drivers, allowing them to earn money on the side or more money than their other job without the inconvenience of a boss.
Who is right?
Well, this is not the old story of labor versus capital that drove a push for workers’ rights for many years. In that narrative, capital exploited less powerful workers to its benefit, so worker protections were necessary. Laws were passed and workers organized unions to ensure that there was a balance of power. In the system that has been built up from this old conflict, the benefits of employment go largely to full-time workers.
Yet if you are Uber’s chief executive, you wake up every day not knowing if your work force will even show up.
In the traditional economy, workers need to quit one job to take another — and there are significant costs to that.
In Uber world, however, Uber drivers can work for other services like Lyft seamlessly. Many do drive for both, taking the best offer each time. It doesn’t seem like exploitation when Uber needs to pay a rate that is better than a competitor’s to attract drivers (of course, this doesn’t mean that the competition is so great, just that Uber is better).
In addition, some Uber drivers are working to pick up extra money. One of my recent Uber drivers was trying to make enough extra money to take her daughter to Disneyland.
Uber is something new in employee-employer relations.
The sharing economy has created a work force for Uber of up to 200,000 drivers in the United States alone in the space of a few years. And it appears to be a service that people like better and can more easily use than taxis. You can take an Uber ride and see why — it is easy, convenient and almost always there (most taxis outside Manhattan don’t live up to that principle as much, to put it politely).
Now the courts are trying to figure out whether Uber’s drivers are contractors or employers from a standard rooted in 19th-century labor law. It’s a standard that has many variations as the law tries to separate workers who need protection from independent contractors who can fend for themselves.
But the State of California adheres to the most liberal of definitions. In S.G. Borello & Sons v. the Department of Industrial Relations, a case decided in 1989 by the California Supreme Court, the test for whether a worker is an employee or a contractor is whether the employer retains all “necessary” control over the worker.
To help carry out the test, the court has enumerated 13 more factors that indicate whether a person is an employee or contractor, such as whether there is “skill” required in the occupation.
California’s definition is notoriously worker-friendly — most states require actual control or the “right to control,” a higher standard than “necessary” control. Under California’s definition, Uber has an uphill battle. The company specifies enough in terms of standards, like licensing and what kind of car you can drive, as well as the ability to terminate drivers, that someone can find that “necessary” control is established, namely enough control for Uber to accomplish its business. In fact, under California law, if an employer has the power to terminate someone at will, then the employer has enough control.
But this test has nothing to do with Uber’s relationship with its drivers. As another court said in a similar case involving Lyft, these drivers do not look like employees or contractors.
Do they really want to have less flexibility about who they work for? Do they want the inability to work for other people or to preselect their rides? And ultimately, given their ability to quit at any time and go to a competitor or even start their own service, do they need protection? Maybe, but probably not.
So we are stuck with a complicated test that produces a result that doesn’t work with the shared economy.
The case is headed for trial after a judge refused to dismiss it this summer and certified it as a class-action suit. Uber is going to have to hope the jury decides that California law just doesn’t apply here.
The strangest twist of all is that this legal case is most likely to have little impact. Uber has all its drivers sign arbitration agreements, which waive the right to bring class-action lawsuits, so this case covers only those who opted out since 2014 or who drove before that time.
And the case covers only California drivers. The potential claim for damages will matter little to a $50 billion company.
This litigation is not going to force Uber to change its practices. That is because Uber doesn’t really work unless its drivers have the flexibility that employees do not have. So Uber is likely to fight this battle in the other states where it has a better chance of winning.
Uber could also restructure its relationship — going through companies that hire workers or contractors. It’s hard to see Uber simply hiring people to drive full time. That would ruin the attraction of the service, not just for Uber but for the drivers themselves.
This case truly highlights the outdated nature of workers’ laws in America, not just around what it means to work for someone, but also what benefits and protections American workers need whether they are a contractor, employee or provider of services.
Unfortunately, it’s yet another Internet issue that the courts can’t solve and the legislatures have yet to tackle.
Steven Davidoff Solomon is a professor of law at the University of California, Berkeley. His columns can be found at nytimes.com/dealbook. Follow @stevendavidoff on Twitter.