Legal Insights

Uber and Driver-employer Relationships

Written by Paul J. Kozacky and Brian O’Connor

Most knowledgeable people will tell you that the biggest problem facing the San Francisco‐based company Uber Technologies Inc. is its seemingly unending battles with cab companies and their regulators — in Chicago and in other major cities worldwide.

But the ostensibly unstoppable upstart technological platform provider, which appears to have revolutionized the short‐distance passenger transportation industry, now is waging battles on two fronts, this new one against its very drivers.

Uber has and continues to present itself not as a transportation provider, but rather as a licensor of a mobile application, which allows individual drivers using their own vehicles to connect with individual passengers seeking rides. Essentially, Uber has tried to set itself up as the neutral Internet middleman.

To conform to this business model, individuals who want to drive for Uber must, among other requirements, enter into licensing agreements with the company, a step almost assuredly designed to cast them as independent contractors, presumably to avoid creation of an employer‐employee (or principal‐agent) relationship.

However, according to at least one state’s labor commission, Uber’s drivers are employees, notwithstanding their independent contractor licensing agreements.

On June 3, in Berwick v. Uber Technologies Inc., et al. (No. 11‐46739 EK), the California labor commissioner found Barbara Berwick, an Uber driver from San Francisco, to be Uber’s “employee” and ordered Uber to reimburse her for necessary expenses she incurred in discharging her duties. These expenses included the applicable Internal Revenue Service mileage rate for all miles she had driven as well as charges incurred on the Bay Area’s toll roads.

The hearing officer seemed poised to rule in Berwick’s favor with respect to her minimum wage claim as well, but she failed to provide any informative records and therefore did not meet her initial burden of proof on that claim.

This ruling may have a monumental effect on the upstart, as Uber almost certainly can expect to see more California drivers, and drivers in other states and possibly other countries, present similar claims.

In Berwick, Uber argued that Berwick was an independent contractor, relying on the licensing agreement and several other relationship factors to demonstrate a lack of sufficient control over her for her to be considered its employee. For example, drivers can use the application whenever they want — there are no minimum number of hours or trips required.

Drivers use their own vehicles, not equipment as is normally provided by an employer. And there are no geographical restrictions either, which grants drivers free range to set their own territories.

These liberties are hardly the trappings of an employment relationship, Uber would certainly posit. But the hearing officer disagreed, stating the “reality, however, is that [Uber is] involved in every aspect of the operation.”

Uber diligently vets prospective drivers through background and Department of Motor Vehicles checks and requires proof of a driver’s license, Social Security number, residential address, insurance and even banking information. In exchange for a refundable deposit, it provides drivers without a compatible phone an iPhone capable of accessing the mobile application.

Uber maintains quality‐control procedures for its drivers by encouraging passengers to rate them and requiring that a driver’s rating meet a minimum threshold. Drivers whose ratings fall below this level lose their mobile application privileges.

Even though drivers use their own vehicles, Uber and its agreement “control the tools the drivers use; for example, drivers must register their cars with [Uber] and none of their cars can be more than 10 years old.” The personal vehicles must be inspected by an Uber‐approved mechanic and pass all requirements on Uber’s vehicle inspection form.

Drivers have no control over the fee paid by passengers, which is determined solely by Uber, and further are discouraged from accepting tips. Based on all of these factors, the hearing officer found that Uber exerted a sufficient amount of control over Berwick and the entire transportation operation for her to be considered its employee.

Just how large of an impact this and potentially other similar rulings in administrative proceedings and federal and state courts can have on Uber remains to be seen.

Could Berwick have sought overtime? Will drivers claim that Uber is subject to federal and state minimum wage laws? Will they seek statutory benefits due employees and medical insurance and lunch breaks and the like?

An ex‐Miami‐based Uber driver already is seeking to collect unemployment insurance. Drivers are sure to leave no stone unturned.

Most profoundly, will this lead to Uber being held vicariously liable for its drivers’ accidents? We saw how management by a third‐party logistics provider can destroy the independent contractor casting of a potato truck driver in Sperl v. C.H. Robinson Worldwide Inc., 408 Ill.App.3d 1051, 946 N.E.2d 463 (3d Dist. 2011), and result in multimillion‐dollar vicarious liability.

While the personal tragedies in Sperl are nothing to minimize, the approximately $24 million awarded in damages could be small potatoes compared to the cumulative verdict ranges for a company with around 160,000 drivers and 8 million customers taking an average of 1 million trips per day. Plaintiff attorneys are sure to leave no pocket unturned.