When I left the California EDD's Legal Office over two years ago, I predicted that the "rideshare" software application companies, Uber and Lyft, would soon come under scrutiny for worker classification issues. My prediction was correct. For the past few months, developments have occurred in two federal wage and hour lawsuits involving these two companies, and centering on issues of worker classification.
The decisions are very similar. In the Lyft decision, Judge Chhabria states: "Lyft drivers don't seem much like employees . . . [b]ut Lyft drivers don't seem much like independent contractors either." In earlier statements made in a preliminary hearing, Judge Chhabria stated that Chhabria said categorizing employees using historical job descriptions and definitions is "woefully outdated." Chilling words, indeed, to businesses using legitimate contract labor.
Both Uber and Lyft allow drivers to make themselves available for work whenever they want and allow them to accept or reject rides once they have been contacted. These factors weigh toward a finding of independent contractor status.
However, both companies reserve the right to either terminate a driver's relationship or to terminate use of the company app if a driver's customer ratings are unacceptable, or for any reason. I.e. "at will and without cause." Strong evidence in support of an employment relationship is the right to discharge at will, without cause.
It is my opinion that both Uber and Lyft drivers should not, necessarily, be classified as employees; however, both companies made some fundamental mistakes in the way they went about treating the drivers. Uber provided drivers with a "Driver Handbook," providing instructions for drivers on dress codes, communication with clients, use of a car radio and availability of an umbrella in their cars. Lyft provided drivers with a "Rules of the Road," which give drivers a list of "rules to live by." Those rules provide direction on greeting passengers, requests for tips, customer service and use of cell phones. Judge Chhabria noted that Lyft replaced the "Rules" with "FAQs" in 2013, but still instructed drivers regarding , GPS navigation while driving, smoking in their own vehicles, requesting telephone numbers of their passengers. Under California law, it is fairly clear that a business may not tell a contractor not to smoke in his own vehicle, unless doing so would be a health and safety violation. That is, they may do so, but this will be a factor evidencing control over the contractor.
Judge Chen cited evidence showing that Uber monitored its drivers to ensure compliance with Uber's many quality control standards. Judge Chhabria found that Lyft could penalize or terminate drivers out of compliance with its Rules of the Road. Lyft and Uber argued that the instructions were merely "suggestions," an idea that was roundly dismissed by both judges.
It would appear that both Uber and Lyft were in need of instruction on Worker Classification 101. Either that, or they expected scrutiny and resulting litigation regarding this worker classification issue, and simply factored in the risk and cost of litigation, knowing that it was possible and even likely that the above practices would not cut muster in California. Of course, I have no way of knowing their motivation. I do believe it is a disappointing state of affairs that, in California, enterprising transportation providers might be restricted from utilizing this novel approach to referrals, should the plaintiffs prevail in these two lawsuits. Should that happen, I believe it will be a green light for employment tax audit and workers compensation litigation.