Labor Commissioner Holds Uber Drivers are “Employees” not “Contractors”

A California Labor Commissioner recently held that Uber drivers are “Employees” and not “Contractors”.  In reaching its decision, the Labor Commissioner reasoned that Uber controls the tools driver use, monitors their approval ratings and terminates their access to the system if their ratings fall below 4.6 stars.  This decision could have a massive chilling effect on the entire sharing-economy industry.  Uber promptly filed an appeal in Superior Court in San Francisco.  Uber’s appeal is currently pending.

The main issue is whether Uber has sufficient right to control the drivers. California Labor Code section 3353 defines an Independent contractor as a “person who renders service for a specified recompense for a specified result, under the control of his principal as to the result of his work only and not as to the means by which such result is accomplished.” The California Supreme Court in the case of S. G. Borello & Sons, Inc. v Dept. of Industrial Relations (1989) 48 Cal.3d 341, adopted the “multi-factor” or the “economic realities”. In applying the economic realities test, the most significant factor to be considered is whether the person to whom service is rendered (the employer or principal) has control or the right to control the worker both as to the work done and the manner and means in which it is performed. Additional factors that may be considered depending on the issue involved are:

  • 1. Whether the person performing services is engaged in an occupation or business distinct from that of the principal;
  • 2. Whether or not the work is a part of the regular business of the principal or alleged employer;
  • 3. Whether the principal or the worker supplies the instrumentalities, tools, and the place for the person doing the work;
  • 4. The alleged employee’s investment in the equipment or materials required by his or her task or his or her employment of helpers;
  • 5. Whether the service rendered requires a special skill;
  • 6. The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision;
  • 7. The alleged employee’s opportunity for profit or loss depending on his or her managerial skill;
  • 8. The length of time for which the services are to be performed;
  • 9. The degree of permanence of the working relationship;
  • 10. The method of payment, whether by time or by the job; and
  • 11. Whether or not the parties believe they are creating an employer-employee relationship may have some bearing on the question, but is not determinative since this is a question of law based on objective tests.

Even where there is an absence of control over work details, an employer-employee relationship will be found if (1) the principal retains pervasive control over the operation as a whole, (2) the worker’s duties are an integral part of the operation, and (3) the nature of the work makes detailed control unnecessary. (Yellow Cab Cooperative v. Workers Compensation Appeals Board (1991) 226 Cal.App.3d 1288)

The IRS has a checklist of 20 factors, which are based on the common law as developed in past court cases and administrative hearings. These factors, found at 4600 IRS manual, are:

1. PROFIT OR LOSS. Can the worker make a profit or suffer a loss as a result of the work aside from the money earned on the project?
2. INVESTMENT. Does the worker have an investment in the equipment and facilities used to do the work? The greater the investment, the more likely independent contractor status will be found.
3. WORK FOR MORE THAN ONE CLIENT. Does the worker perform services for more than one client at a time?
4. SERVICES OFFERED TO THE GENERAL PUBLIC. Does the worker offer services to the general public?
5. INSTRUCTIONS. Does the business have the right to give the worker instructions about when, where and how to perform the services?
6. TRAINING. Does the business train the worker to do the job in a particular manner?
7. INTEGRATION. Are the worker’s services so important to the business that those services have become a necessary part of the business?
8. HIRING ASSISTANTS. Does the business hire, supervise and pay the worker’s assistants or staff?
9. SERVICES RENDERED PERSONALLY. Does the business require that the worker provide the services personally or may the services be delegated to someone else?
10. WORK HOURS. Does the business set the work hours or is the worker the master of his/her own time?
11. CONTINUING RELATIONSHIP. Is there an ongoing relationship between the worker and the business?
12. WORK PERFORMED ON PREMISES OF BUSINESS. Must the worker perform the services on the premises of the business, or does the business control the route or location where the services are performed?
13. SEQUENCE OF SERVICES. Does the business have the right to control and determine the order in which services are performed?
14. REPORTS REQUIRED. Is the worker required to submit reports accounting for the worker’s actions?
15. PAY SCHEDULE. Is the worker paid by the hours, day, week, or month as opposed to being paid by the job or on commission?
16. EXPENSES. Is the worker reimbursed for expenses for business or travel costs?
17. TOOLS AND MATERIALS. Is the worker provided by the business with the equipment, tools and/or materials necessary to perform the services?
18. EMPLOYER’S RIGHT TO TERMINATE. May the business fire the worker at any time?
19. FULL TIME EMPLOYMENT. Is the individual required to work full time for your company?
20. LIMITATION OF SERVICES. Does the individual limit the availability of his services to the general public?