Uber Loses Free Ride on Employment Laws

Technological disruption comes at a price.

I’m not talking about the price of lost jobs, disappearing economies, or even the competitors that go under. I’m talking about the cost to the innovator themselves as they create new models and paradigms that historic regulatory structures are unprepared for.

One of the most talked about contemporary change these days is Uber (although its status as disruptive is disputed). The obvious regulatory burdens faced by the company include the anticipated clash with taxis, notable for the protests in Toronto and Montreal.

The more significant legal challenges faced by Uber is the classification of its workers.

Last summer, the California Labor Commission ruled in Uber v Berwick that Uber workers in that state were employees, not contractors, based on the broad basis of control exerted by the company. But this decision is considered largely administrative, and non-binding, so it has had limited effect on subsequent claims.

In another tribunal proceeding later last year, The Department of Labor and Workforce Development’s Workers’ Compensation Division brought a complaint against Uber to Alaska’s Workers’ Compensation Board over the same issue. The matter settled for $77,925, with an order not to operate in the state until workers were classified as employees.

In April of this year, Uber settled two class actions in California and Massachusetts, paying about $100 million to about 385,000 drivers. The catch though was that the plaintiffs agreed that Uber drivers were still contractors, and not employees.

The Central London Employment Tribunal ruled this week in Aslam v Uber that two Uber workers were employees, and not contractors, and were therefore entitled to vacation and benefits.

The decision describes Uber as a “modern business phenomenon” with 30,000 drivers in London alone, and details the business structure and the contractual practices involved with the workers and users, expressing concern around the language used and the way forms are imposed.

At para 87 they specifically point to the fact that the passenger’s ‘invoice,’ for example, is not an invoice and is not sent to the passenger, but the driver. It does not serve the ordinary purpose of a legal invoice, which is to provide a formal request for payment to a customer. They cite Hamlet, Act 3, Sc. 2, when describing the contractual fictions in place, “The lady doth protest too much, methinks.”

The bizarre legal relationship in place is one where there is no contract between the driver and Uber for the provision of transportation. Instead, the contract agreements compel a driver to agree to enter into a binding transportation contract with a rider whose identity they will never know, to a destination that will not be revealed until the journey begins. The party and the terms of the contract are all a mystery to the driver, but Uber still requires them to enter into this enforceable agreement while claiming they are contracting independently. A long list of administrative factors are pointed to at para 92 to illustrate the extensive control that Uber provides over its drivers.

The tribunal also expressed skepticism when reviewing documents and statements made outside of the general business context, which appeared to strengthen the argument that they were an employer. In a fascinating example of how courts borrow from other jurisdictions when dealing with novel ideas, they cite the California tribunal case to strengthen their argument that Uber does not sell software and is not a technology company.

The tribunal relied on the relevant statutes for their finding that when the App is switched on, a driver within the territory authorized to work, and willing to accept assignments, is under a worker contract. But it’s quite clear that the statutory regime, both in the U.K. and elsewhere, is unsatisfactory to deal with these new commercial realities. In fact the Aslam decision makes an extensive analysis and application of the Rome Convention on the conflict of laws issue emerging from terms which appear to indicate a choice of laws clause in Netherlands, not England and Wales.

Alan Krueger, a former economist with the Obama administration, recently released a paper, where he argues for the creation of a new legal category in employment law called independent workers, who are less independent than contractors, but more independent than traditional employees,

Independent workers typically work with intermediaries who match workers to customers. The independent worker and the intermediary have some elements of the arms-length independent business relationships that characterize “independent contractor” status, and some elements of a traditional employee-employer relationship. On the one hand, independent workers have the ability to choose when to work, and whether to work at all. They may work with multiple intermediaries simultaneously, or conduct personal tasks while they are working with an intermediary. It is thus impossible in many circumstances to attribute
independent workers’ work hours to any employer. In this critical respect, independent workers are similar to independent businesses. On the other hand, the intermediary retains some control over the way independent workers perform their work, such as by setting their fees or fee caps, and they may “fire” workers by prohibiting them from using their service. In these respects, independent workers are similar to traditional employees.

Krueger states,“The current set of labor laws and employment laws are obsolete for this emerging sector.” Although the litigation over the contractual status of Uber drivers hasn’t really reared its head in Canada, the statutory quagmire remains the same here.

What does emerge from the Aslam decision is that Uber will not have an easy ride if it claims independent contractor status in Canada either, at least under our current employment laws.