By David Zvirman, Staff Writer
Today, just about every one of us has taken a ride in an Uber or Lyft.[1] Some have even driven for one of these companies, hoping to make a buck in the growing gig economy. Most, however, have likely never considered whether these drivers were really “employees” or not, or what the implications such a definition has. On January 15, 2019, the Third Circuit became the first court to hear oral arguments over the question of whether Uber drivers are “employees” or “independent contractors.”[2] The case, Razak v. Uber Techs., Inc., [3] originates from a grant of summary judgment by a district court holding that Uber drivers were not “employees.”[4]
In Razak, the Plaintiffs, comprised of three UberBLACK[5] drivers who also operated their own limousine services, brought suit against Uber and its subsidiary.[6] The Plaintiffs alleged that Uber had violated both federal and state minimum wage and overtime laws.[7] Their main contention was that they are “employees” of Uber, and as such are entitled to overtime pay and other benefits under both federal and state law.[8] Uber opposed this, arguing that the drivers are not “employees” as a matter of law, and moved for summary judgment.[9]
To determine whether the Plaintiffs were indeed employees or simply independent contractors, the District Court applied the Third Circuit’s six factor test developed in Donovan v. DialAmerica Marketing, Inc.[10] With no single factor being dispositive,[11] they included:
- (1) the degree of the alleged employer’s right to control the manner in which the work is to be performed;
- (2) the alleged employee’s opportunity for profit or loss depending upon his managerial skill;
- (3) the alleged employee’s investment in equipment or materials required for his task, or his employment of helpers;
- (4) whether the service rendered requires a special skill;
- (5) the degree of permanence of the working relationship; and
- (6) whether the service rendered is an integral part of the alleged employer’s business.[12]
Because no factor is dispositive, the District Court held that it must consider the “economic reality” of the situation and whether the plaintiffs were “dependent upon the business to which they render service.”[13] Thereafter, the Court then turned to addressing the various factors.[14]
Addressing the first two Donovan factors, the Court found they both weighed in favor of “independent contractor” status[15] because the Plaintiffs were free to determine their own hours, were free to reject rides, and were free to not log on to the app.[16] More importantly, however, the Plaintiffs and their own limo staff were allowed to work for Uber’s competitors.[17] This ability to work for competitors specifically has been established “as a leading indicator that a worker is an independent contract.”[18]
The Court also held that the third factor favored “independent contractor status,” as all investment and equipment costs were placed on the worker alone.[19] Addressing the fourth factor, the Court determined this favored “employee” status, as the labor involved did not require special skills.[20] Although the fourth factor did favor employee status, the Court stated it did not carry much weight in helping the Plaintiffs’ case.[21]
Regarding the fifth factor, the Court found it favored “independent contractor” status.[22] The Court explained, “Because UberBLACK drivers can work as little or as much as they want—the hallmark of a lack of ‘relationship permanence’ with an alleged employer—this factor weigh[ed] heavily in favor of. . . independent contractor status.”[23]
Finally, the sixth factor favored “employee” status, as without the drivers, Uber could not function.[24]
Because the District Court’s analysis showed that only two factors weighed in favor of “employee” status,[25] the “totality of the circumstances” favored “independent contractor” status.[26] Accordingly, the Court granted Uber’s motion for summary judgment,[27] and Plaintiffs appealed to the Third Circuit.[28]
On appeal, the Plaintiffs argued that the District Court had erred in granting summary judgment to Uber because a reasonable jury could have held that they were “employees.”[29] In opposition, Uber argued that the Plaintiffs failed to meet their burden and as such were “independent contractors as a matter of law.[30] The parties then continued these arguments in their oral arguments before a panel of the Third Circuit.[31]
The Third Circuit panel seemed more focused on the detailed language of the agreement between Uber and the Plaintiffs than on whether there was a genuine dispute of material fact.[32] The Court noted this agreement went to great lengths to show that the relationship between Uber and its drivers was not that of an employer/employee.[33] The Court went on to ask both sides what import should be given to this document.[34]
It also seemed troubled by the Plaintiffs’ argument that individual workers may interpret the contract as an employment contract and that this subjective perception should have some consideration.[35] In the closing minutes of the proceeding, the Court asked how could any business in the future draft a contract with any confidence if its effect would be based on the subjective view of the person signing it.[36] Some, the Court noted, may see Uber as a full time job, while others may see it as a “side gig.”[37] In response, the Plaintiffs’ counsel stated that when a bright line rule is not used, there will always be uncertainty.[38]
Currently, however, there is uncertainty while the Third Circuit panel deliberates over this case. Should it affirm the District Court’s ruling, it could create a non-binding precedent for other courts to follow, shutting down future claims by Uber drivers in other jurisdictions seeking “employee” status. Should it reverse, the entire gig industry may have to rethink how it works with its labor force.
On April 29, 2019, the Labor Department issued an opinion letter determining whether an unnamed company’s workers were employees or independent contractors, finding the latter.[39] The company was an “online and/or smartphone-based referral service” to provide consumers with cleaning, transportation, delivery, shopping, moving, painting, and other household services.[40] The service providers were required to provide basic personal information, self-certify their own qualifications, and complete a background check through a third-party.[41] Notably, the terms of the agreement between the company and the service providers expressly disclaimed any “employment relationship.”[42]
While the opinion from the Labor Department is potentially telling, it does apply only to the company that requested it. As the Third Circuit deliberates, and more and more issues inevitably arise, we can only wait and see whether the gig economy will support or forego “employee” status for the workers involved.
Sources
[1] In 2018, 95 million people used Uber on a monthly basis. Monthly users of Uber’s ride-sharing app worldwide 2016-2019, Statista, https://www.statista.com/statistics/833743/us-users-ride-sharing-services/ (last visited April 22, 2019).
[2] Emilee Larkin, Uber Drivers Face Uphill Battle in 3rd Circuit Appeal, Courthouse News Serv. (Jan. 15, 2019), https://www.courthousenews.com/uber-drivers-face-uphill-battle-in-3rd-circuit-appeal/; Daniel Wiessner, 3rd Circuit will be first appeal court to consider classification of Uber drivers, Reuters Legal (Jan. 14, 2019), https://1.next.westlaw.com/Document/Idbcaf940183011e9bec1e4528b1ddbe5/View/FullText.html?transitionType=SearchItem&contextData=(sc.Category).
[3] Ali Razak, et al v. Uber Techs. Inc., et al, 18-1944
[4] Razak v. Uber Techs., Inc., 2018 WL 1744467 (E.D. Pa. Apr. 11, 2018).
[5] Uberblack is Uber’s limousine service. Id. at *3.
[6] Id. at *1.
[7] Id.
[8] Id. at *7.
[9] Id. at *3.
[10] Razak, 2018 WL at *8 (citing Donovan v. DialAmerica Marketing, Inc., 757 F.2d 1376 (3d Cir. 1985)).
[11] Id.
[12] Id. (citing Donovan, 757 F.2d at 1382).
[13] Id. (citing Donovan, 757 F.2d at 1382-83).
[14] Id. at *10.
[15] Id. at *14-17.
[16] Id. at *16-17.
[17] Id. at *15.
[18] Id. (citing Saleem v. Corp. Transp. Grp., Ltd., 854 F.3d 131, 141 (2d Cir. 2017)).
[19] Id. at *17-18.
[20] Id. at *18.
[21] Id.
[22] Id. at *18-19.
[23]Id. at *19.
[24] Id.
[25] Id.
[26] Id.
[27] Id.
[28] Razak, supra note 4.
[29] Id. at 20.
[30] Appellee’s Brief, at 21 and 27, 2018 WL 4760208 (C.A.3).
[31] Oral Argument of Razak v. Uber Techs., Inc., (Jan. 15, 2019). https://www2.ca3.uscourts.gov/oralargument/audio/18-1944RazaketalvUberTechnologiesIncetal.mp3.
[32] Id.
[33] See Id. at (07:45).
[34] Id. at (07:58); (32:24).
[35] Id. at (52:48).
[36] Id. at (53:45).
[37] Id. at (54:21).
[38] Id. at (54:54).
[39] Noam Scheiber, Labor Dept. Says Workers at a Gig Company are Contractors, NY Times (April 29, 2019), https://www.nytimes.com/2019/04/29/business/economy/gig-economy-workers-contractors.html.
[40] Id.
[41] Id.
[42] Id.
