Takeaways from the On-Demand Economy’s First Collision with Employment Class Action Law

“Let’s just grab an Uber or a Lyft.” For many, this statement is fast becoming as unremarkable and ubiquitous as “Let’s grab a cup of coffee.”   Such has been the meteoric rise of the so-called “on-demand economy,” where summoning anything from a car ride to a handyman is – quite literally – as easy as clicking a button (or app).

But developments in technology often outpace developments in the law, and the summary judgment decisions in two putative class actions, O’Connor v. Uber Technologies, Inc., Case No. 3:13-cv-03826-EMC, 2015 U.S. Dist. LEXIS 30684 (N.D. Cal. Mar. 11, 2015) and Cotter v. Lyft, Inc., Case No. 3:13-cv-04065-VC, 2015 U.S. Dist. LEXIS 30026 (N.D. Cal. Mar. 11, 2015), represent the first – of likely many – collisions between the on-demand economy of the twentieth-first century and employment laws rooted in the twentieth century. The collision in these cases: the use of independent contractors, a practice at the heart of many on-demand business models.

Uber and Lyft allow customers to request a driving service, be matched with a nearby driver, and be driven to a requested location. The legal question at issue is whether the drivers are properly classified as independent contractors, as they currently are, or employees. The answer has drastic consequences: change the classification to employee and companies become responsible for reimbursing business expenses (e.g., gas), paying minimum wage, and providing many other protections afforded only to employees.

While the stakes are clear, the answer is not. In California, the distinction between an employee and an independent contractor depends on numerous factors. The primary question is whether the putative employer has the right to control the “manner and means” of the work. S.G. Borello & Sons, Inc. v. Dep’t of Indus. Relations, 48 Cal.3d 341, 350. Secondary considerations include: (1) whether the worker is engaged in a distinct occupation; (2) whether the work, in that locality, is typically performed absent supervision; (3) the skill required; (4) whether the worker supplies the instrumentalities of work; (5) the work’s duration; (6) whether payment is by time or by job; (7) whether the work is part of the putative employer’s business; (8) whether the parties believe they created an employer-employee relationship; and (9) the worker’s prospects for profit or loss depending on managerial skill. Id. at 351, 355. The O’Connor and Cotter courts evaluated these factors and denied Uber’s and Lyft’s motions for summary judgment, ruling that, based on the facts presented, the drivers could not be deemed independent contractors as a matter of law.

Businesses in the on-demand economy should take-away two lessons from this. First, businesses interested in maintaining independent contractors should:

• Surrender the power to terminate the worker at-will;
• Surrender the power to control whether the worker accepts a job;
• Surrender the power to control the worker’s schedule;
• Surrender the power to control the details of how jobs are performed;
• Surrender the power to impose restrictions on appearance;
• Require the worker to provide all instrumentalities needed for the job;
• Allow the worker to accept other employment; and
• Communicate independent contractor status clearly and consistently.

Second, determining an independent contractor’s status is fact-intensive. Thus, while surrendering control over an independent contractor can undercut a business’ branding and quality control efforts, failure to do so can lead to significant class action liability.

Does this spell the end of the on-demand economy? Probably not. But it is clear that old-school rules can still cause some real new-age problems.