Uber’s court victory serves as a reminder of the importance of proper classification

By Stephen Mitchell & Sheila Bias

Much of the recent buzz regarding the Fair Labor Standards Act (“FLSA”) has focused on the saga of white collar exemptions. The proverbial “will they or won’t they” captivated the focus of businesses and industries that were sure to be impacted by the changes to the salary thresholds for non-exempt employees. However, a recent decision involving Uber serves as a reminder that there’s more to the FLSA than employee exemptions.

Last month, a California court granted Uber a significant victory in the ongoing misclassification battle over whether its drivers are properly classified as independent contractors. Companies that utilize independent contractors or struggle with classification of their work force should not only embrace this ruling but could also cite it if their classification structures are challenged by plaintiffs’ attorneys or government agencies. And, perhaps more importantly, they should proactively apply the lessons from this case to reduce the chances of being caught in a misclassification trap to begin with.

You are probably familiar with the ride-sharing model offered by Uber and its competitors. Individuals sign up as drivers and are connected with passengers needing a ride. The drivers are classified as independent contractors because of the lack of control levied by Uber.  However, that has not stopped drivers from bringing lawsuits against the ride-sharing company seeking to be classified as employees. In February 2017, a Florida state appellate court ruled that Uber drivers are independent contractors, not employees. Although courts in California had previously reached an opposite conclusion in 2015, an embrace between a driver and a passenger has potentially changed that. 

In July 2015, Yosef Eisenberg was an Uber driver who gave a female passenger a hug.  Uber learned of the hug and conducted an investigation. Eisenberg explained in vain that the customer was drunk, had asked to sit in the front seat next to him, and said she wanted to “hang out with him.” He claimed that he only gave her a hug “to diffuse the situation” at the end of the ride. Uber disagreed, classified his behavior as sex harassment, and permanently deactivated his status as a driver.

Eisenberg brought legal action against Uber in an effort to get his job back and collect damages. His claim alleged he was an employee of the company and thus was entitled to all the protections and benefits afforded to employees in California.

In November 2016, the arbitrator ruled in Uber’s favor and rejected Eisenberg’s claim in a 50-page written decision. In looking at the relationship between Uber and Eisenberg, the arbitrator determined that Uber does not maintain the right to control its drivers, and thus no employer-employee relationship existed. Five of the factors cited by the arbitrator as determinative included that (1). Uber does not provide drivers with an employee manual or handbook: (2) Uber requires drivers to provide their own cars, drivers are not guaranteed any number of rides per day; (3) Drivers establish their own schedules; (4) Uber requires no start and stop times for drivers; and, (5) Uber does not supervise its drivers.

The combination of these factors and others led the arbitrator to conclude that Uber drivers were properly classified as independent contractors. The arbitrator acknowledged that some factors exist that could arguably constitute a “right to control” between Uber and driver, but discounted them as not being significant enough to warrant a ruling in Eisenberg’s favor.

Any businesses relying on independent contractors – including shared economy or “gig” economy businesses – should pay close attention to this ruling and apply the lessons it teaches. Reviewing the factors the court cited should assist in establishing preferred practices that will minimize the changes of a misclassification lawsuit and maximize the chances of success should such a lawsuit be filed against your business.

Stephen Mitchell Biography

Stephen Mitchell is the managing partner of the Columbia office of national labor and employment firm Fisher Phillips. Steve focuses the majority of his practice on the representation of employers in the traditional labor law arena. His practice includes advising clients on collective bargaining, avoiding and responding to unfair labor practices, acquisition of unionized facilities, union organizing efforts, corporate campaigns, labor arbitrations, and work stoppages.

Sheila Bias Biography 

Sheila Bias is an attorney in the Columbia office of Fisher Phillips. She represents employers in a variety of labor and employment matters. Sheila is a member of Fisher Phillips’ pay equity practice group and the firm’s Women’s Initiative and Leadership Council, which strives to advance women within the firm and in the legal community.