Revision: A California court ruled that Uber Drivers are employees
California recently passed a bill near the end of 2019 effectively changing the tax code used for the determination of employees and independent contractors. This new bill will affect thousands of businesses and independent contractors in California, but most notably it has affected the ride-share corporations Lyft and Uber. The previously labeled independent contractors working for Uber and Lyft are now being considered employees by the state of California. Uber and Lyft will now have to collect reemployment taxes from their “employees” and remit it to the state. Some people see this a positive change as many Uber and Lyft drivers will now be able to claim reemployment if they choose to no longer drive for the two companies. However, this decision was forcefully made for many who want to remain as independent contractors for their “side gig”. California Labor code 2750.3 provides that a person providing labor or services for remuneration shall be considered an employee rather than an independent contractor unless the hiring entity demonstrates that all the following conditions are satisfied:
(A) The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
(B) The person performs work that is outside the usual course of the hiring entity’s business.
(C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
Typically, states model their common law determinations for re-employment on the common law determinations of the IRS. Unfortunately, the states still have the discretion to apply the common law determinations differently than the IRS or any other state, causing confusions and hardship for employers. One state can determine an individual to be an independent contractor while another state labels the individual an employee. Below are the 10 factors that the IRS uses to determine if someone is an employee or an independent contractor:
The extent of control which (by agreement between the employer and the worker) the business may exercise over the details of the work
If the employer decides what work the worker will do and how the worker will do it, then the worker is an employee. When an employer hires an independent contractor, the employer is normally interested only in the result, not the details of how the contractor performs the work. The employer can decide what results are expected from the independent contractor but cannot control the methods used to accomplish those results. This factor is the most important of the 10 determining factors. Uber tells their drivers that they:
- Cannot touch passengers
- Cannot give rides to anyone under 18 years of age
- Cannot carry a legally concealed firearm for self-defense
- Cannot contact riders after a ride has ended
- Cannot flirt with riders
- Requires a phone mount to be used
- Keeps tracking and notifies drivers when speeding
- Uber stops sending rides to drivers once they reach a time limit, to prevent drowsy driving.
- Drivers can only drop off riders at safe, well-lit areas, and legal drop-off points. So, no rides into area 51.
This seems like a lot of little nitpicky issues that Uber is demanding from its “Independent Contractors”. These could merely be suggestions to drivers rather than rules that must be followed, but this could be seen as excessive control and likely to be interpreted as rules for employees. These requirements go beyond making sure the driver can legally drive and hinders the driver from being an independent driver apart from uber. A driver cannot simply give another ride to previous riders without going through the Uber app, less they get caught and have their account disabled.
Whether the one employed is engaged in a distinct occupation or business
A person engaged in a distinct occupation or business is more likely to be an independent contractor if the occupation or business is separate and distinct from the employer’s business. Drivers are in the business of driving but is Uber in the business of providing drivers to riders like a cab company or is it merely a marketplace for drivers and riders to connect. Most employees on salary in Uber are going to be providing support services both riders and drivers, I would not say that Uber is in the business of hiring drivers.
Whether the work done in a certain locality is usually done under the direction of the employer or by a specialist without supervision
If the work is usually done under the direction of an employer, then the worker is more likely to be an employee. If the work in that locality is usually done by a specialist without supervision, then the worker is more likely to be an independent contractor. This circles back to the control doctrine. Uber does tell drivers what to do and what not to do during their rides. Are these merely suggestions or can drivers be terminated if these “suggestions” are not followed?
The skill required in the occupation
The greater the skill required for the occupation, the more likely the worker is an independent contractor. Licensed professionals are almost always independent contractors. Since most anyone in the United States can drive for Uber if they have a valid license, this is not a specialized occupation. A more specialized driving occupation would require a specialized license such as a Commercial Driver’s License.
Whether the employer or the worker supplies the instrumentalities (for example: equipment, vehicle, materials), tools, and the place of work for the person doing the work
Independent contractors are generally expected to provide or purchase everything they need to do the job. Employees are not expected to provide their own workplace, materials, tools, and supplies, or to otherwise invest their own money in the business. Uber offers nothing to drivers other than the application. The driver is responsible for the vehicle that they drive.
The length of time the person is employed
The more long-term, continuous, and exclusive the relationship is, the more likely it is to be employment. The rides for Uber are short engagements, lasting from a few minutes to a few hours. Once the ride is complete, the Uber driver is no longer being paid for services.
The method of payment, whether by the time or by the job
Independent contractors generally perform their work one job at a time and are paid by the job. An employee is paid for his time, usually on a 2-week schedule. Uber drivers are paid by the ride, so it better resembles being paid by the job as like an independent contractor.
Whether the work is a part of the regular business of the employer
If the service provided by the worker is an integral part of the service the employer provides to the public, the worker is more likely to be an employee. If the service provided is completely different than the service provided by the business, then it is easier to claim that the service provider is not an employee of the business.
Whether the parties believe they are creating the relationship of employer and employee
If there is a written agreement between the parties describing the contractual relationship, this will be considered. However, how the worker is treated, not the language of a written agreement or the issuance of a 1099, determines whether the worker is an employee or an independent contractor. Uber can create requirements for drivers just as a contract would have requirements for contractors, but the level of control is the most important factor. Uber can require riders to be licensed and get passengers to their destination safely, but Uber tells drivers what route to take, how fast, and for how much, thesis where the waters become murky.
Whether the hiring party is or is not a business
If the hiring party is a business, it is more likely that the worker is an employee. If the hiring party is an individual, the worker is more likely to be an independent contractor.
Summary
For the case of Uber and Lyft, it is difficult to determine if the drivers are independent contractors or employees. Are riders able to call up a previous driver and hire them directly without using Uber? Is uber controlling the drivers when they tell them how many passengers are allowed in their car, what route they can take, and how to handle Covid restrictions? Is Uber in the business of providing ride sharing service, or is it merely a marketplace facilitator helping customers and drivers meet? Are drivers able to accept work from Uber and Lyft at the same time? Are the drivers for Uber professional drivers, or is this their second job? The determining factor is whether Uber and Lyft have control over the drivers. Are the drivers allowed to do what they want as long as the passengers arrive at the destination safely? It seems that Drivers have more rules & restriction than just “drive”. Considering that Uber and Lyft both have questionable requirements for their drivers, it is going to be an uphill battle for them to prove that their drivers are not under their control.
Authority
California Labor code sec. 2750.3
Additional Resources
https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201920200AB5
https://floridarevenue.com/taxes/taxesfees/Pages/rt_employee.aspx
https://floridarevenue.com/taxes/taxesfees/Pages/rt_employee.aspx
Donovan Niles 