The Uber Effect: Are Your Contract Workers Really Employees?
By Stuart Buglass, VP Consulting
Last month Uber announced that it will pay up to $100 million to settle class action claims from US drivers claiming to be employees rather than self-employed contractors. The global ride-hailing service is fighting similar battles on a number of fronts, including a lawsuit in the UK from drivers seeking worker rights and compensation for lost earnings.
Uber’s situation demands closer scrutiny because contingency work of this kind — which is part of the so called gig or sharing economy — is booming in countries around the world, with major players such as Airbnb and Lyft becoming household names just a few years after starting up. Uber itself is in fact the fastest growing start-up in history, with an estimated value of $60 billion. Its rise is testament to the growth and value of the gig market, which provides workers with flexible hours and employers with reduced labor costs. According to a 2016 Time Magazine poll, the gig market provides an estimated 14.5 million Americans with their primary source of income.
This new world of contingent labor does not come without costs, and is in many ways seriously testing old labor codes that demarcate the self-employed from the employed. The distinction is an important one. Traditionally-employed workers are protected by labor laws, which vary by country but which invariably aim to ensure individuals get a fair deal. Labor laws protect employees from unfair dismissal and discrimination and set minimum standards for working conditions, hours, pay and benefits.
Worker Classification Basics
When discussing the ramifications of the expanding shared economy, it’s important to keep in mind that traditional employers play a critical role as agents for the world’s tax authorities by withholding and remitting billions in income tax from the wages of employees. Employers also of course fund employee social security contributions. So while upholding individual rights is obviously a priority, governments are also financially motivated to ensure that as many individuals as possible are categorized as employees rather than as contractors when appropriate under local labor laws.
When categorizing workers as employees or contractors, the world shares a common set of values. It should come as no surprise, then, to learn that the tests deployed in each country to identify an employee are broadly similar. (It’s critical to note that in virtually all countries, a contract in itself is insufficient to prove the existence of an independent contractor relationship, though a contract attesting to that can weigh significantly with authorities when making determinations.) These tests generally apply a balanced scorecard of behaviors to uncover certain elements of the working relationship that tend to suggest either an employee-employer relationship or an independent contractor relationship. Here are some typical factors that authorities consider when making determinations.
- Degree of subordination of the worker
- Degree of the worker’s integration with the hirer’s business
- Degree of exclusivity of relations (contractors typically have multiple clients, not an exclusive relationship with a single hirer)
- Degree of financial dependence of the worker on the hirer
- Degree of control that the hirer can exert over the worker (more control suggests an employment relationship)
- Regularity of hours and payments (regular hours and payments suggest an employment relationship)
- Provision of employee-type benefits (e.g., sick leave)
- Provision of tools and equipment (contractors typically use their own equipment, not equipment provided by the hirer)
In most countries, no single factor is decisive, and local authorities make worker-classification determinations based on the aggregate of the behaviours in evidence. That said, worker classification does vary by jurisdiction. For example, German authorities historically have been relatively strongly influenced by the level of a worker’s financial dependence on his or her hirer. And in some countries, such as the Netherlands and Russia, the mere fact that an individual is registered as self-employed can be persuasive regardless of the true nature of a given working relationship.
Behaviours That Are Proving Problematic for Uber (and Maybe for You)
In the recently settled class action mentioned above, Uber drivers based in California and Massachusetts argued that they should have been classified as employees based on certain aspects of their working relationship, such as the facts that the company determines performance standards, pay, fares, and even the routes taken and whether tips can be collected. And while the drivers and the company reached the $100 million settlement, many legal experts regard the outcome as a victory for Uber, given the high number of drivers involved (385,000) and Uber’s $60 billion valuation.
Still, though the settlement removed the threat of action from those 385,000 drivers in California and Massachusetts, the issue of whether Uber should be on the hook for employer obligations in other US states — and indeed in other countries — isn’t likely go away, and Uber’s lawyers will be kept busy defending claims in myriad jurisdictions.
Uber’s risks in this legal area are particularly high in countries with worker-classification laws that include a type of blended or hybrid worker who has aspects of an employee and a contractor and receives special legal treatment. Spain, for example, classifies self-employed workers as “autonomos.” Those that earn 75% of their income are entitled to 18 days annual leave and coverage against workplace accidents. In counties that recognize this type of middle category of worker, Uber drivers with worker-classification claims are more likely to succeed.
Uber’s biggest potential liabilities in this area concern auto accidents, along with the intentional torts of its drivers towards the public (such as physical assaults on passengers). In such cases, if a driver is found to be an employee, Uber could be held vicariously liable for damages and may face criminal sanctions for health and safety and other regulatory breaches.
Worker-classification claims and evolving legislation are big issues not only for high-profile gig players like Uber and Airbnb. All employers who supplement their workforce with contract workers need to monitor the shifting landscape of worker-classification laws, as lawmakers struggle to keep pace with the global economy. Recent advances in technology that make flexible working practices a reality have coincided with an increased appetite from generation Y professionals to operate as portfolio workers — individuals whose employment consists of multiple contracting gigs — to better balance their working and leisure time or simply to gain an economic foothold in an era of widespread high unemployment. In short, if you contract with highly specialized portfolio workers you could well find yourself in a position similar to Uber's when your own engagements are scrutinized.