Are Uber Drivers Employees or Independent Contractors? Department of Labor Revises Interpretation of Independent Contractor Rule Under the Fair Labor Standards Act

Evan Wadler

 

On September 25, 2020, the Department of Labor (“DOL”) published a notice of proposed rulemaking (“NPRM”) in the Federal Register revising its interpretation of independent contractor status under the Fair Labor Standards Act (“FLSA”).^[1] The proposed revision comes after an extensive battle in California between the State and Big Tech companies over the companies’ (mis)classification of workers as independent contractors to avoid the costs of certain rights granted to employees under the FLSA, including the rights to minimum wage, overtime pay, health insurance, and unemployment insurance.^[2]

The California Supreme Court issued a ruling in Dynamex Operations West v. California Supreme Court on April 30, 2018, rejecting the Borello test for determining whether workers should be classified as employees or independent contractors in favor of a new “ABC” test.^[3] The ABC test carries with it a presumption that all workers are employees and places the burden on the entity asserting that its workers are independent contractors to show:

 

(A) that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;

(B) that the worker performs work that is outside the usual course of the hiring entity’s business; and

(C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.^[4]

 

In response to the Dynamex decision, the California legislature passed Assembly Bill 5 (“AB5”) on September 18, 2019.^[5] AB5 codified the “ABC” test and reiterated that “a person providing labor or services for remuneration shall be considered an employee rather than an independent contractor unless the hiring entity demonstrates that the person is free from the control and direction of the hiring entity in connection with the performance of the work, the person performs work that is outside the usual course of the hiring entity’s business, and the person is customarily engaged in an independently established trade, occupation, or business.”^[6]

Ride-sharing giants Uber and Lyft reacted negatively to AB5 when the law went into effect on January 1, 2020, refusing to reclassify their workers as employees and asserting that, in any event, the law does not apply to them because they are technology companies and thus do not “control” how their drivers perform their work.^[7] Then, COVID-19 hit, and thousands of Uber and Lyft drivers lost their jobs, forcing them to seek benefits from the state unemployment fund—a fund which companies like Uber and Lyft had never paid into.^[8] Facing an impending budget deficit, California Attorney General Xavier Beccera sued Uber and Lyft in May for failing to comply with AB5.^[9] Then, in August, a California judge ordered Uber and Lyft to reclassify their drivers as employees within ten days of the ruling,^[10] and in October the companies lost an appeal of that decision,^[11] leaving them with few avenues left to pursue.

Meanwhile, one of the measures on the 2020 California ballot was Proposition 22, or the App-Based Drivers as Contractors and Labor Policies Initiative, which was approved by voters on November 3.^[12] The proposal effectively overturned both the California Supreme Court decision in Dynamex and AB5 by, as its name suggests, defining app-based drivers as independent contractors. Companies like Uber, Lyft, Grubhub, and DoorDash poured millions of dollars into the “Yes on Prop 22” campaign as a last-ditch effort to prevent themselves from having to classify their drivers as employees—and it seems to have worked.^[13] With victory fresh in their minds, the app-based companies have vowed to introduce similar legislative proposals in other states, like New York, where longstanding debates have ensued over unemployment compensation for gig workers.^[14]

 

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^[1] Independent Contractor Status Under the Fair Labor Standards Act, 85 Fed. Reg. 60600 (proposed September 25, 2020) (to be codified at 29 C.F.R. 780, 788, & 795).

^[2] Sam Harnett, KQED, California, City Attorneys Sue Uber and Lyft Over Worker Misclassification (2020), https://www.kqed.org/news/11816321/california-city-attorneys-sue-uber-and-lyft-over-worker-misclassification.

^[3] Timothy Kim, Sheppard Mullin, The Dynamex Decision: The California Supreme Court Restricts Use of Independent Contractors (2018), available at https://www.laboremploymentlawblog.com/2018/05/articles/class-actions/dynamex-decision-independent-contractors/.

^[4]Dynamex Operations West v. California Supreme Court, 416 P.3d 5, 43 (Cal. 2018).

^[5]Assem. Bill No. 5 (2018-2019 Reg. Sess.) (Cal. 2019).

^[6]Id.

^[7] Carolyn Said, San Francisco Chronicle, Uber, Lyft Drivers Tell State to Enforce AB5, Get Us Back Wages, https://www.sfchronicle.com/business/article/Uber-Lyft-drivers-to-state-Enforce-AB5-get-us-15030205.php.

^[8] Meyer Gorelick, San Francisco Examiner, Uber and Lyft Drivers Demand Unemployment Benefits (2020), https://www.sfexaminer.com/news/uber-and-lyft-drivers-demand-unemployment-benefits/.

^[9] Harnett, supra note 2.

^[10] Bobby Allyn, NPR, California Judge Orders Uber And Lyft To Consider All Drivers Employees (2020), https://www.npr.org/2020/08/10/901099643/california-judge-orders-uber-and-lyft-to-consider-all-drivers-employees.

^[11] Carolyn Said, San Francisco Chronicle, Uber, Lyft Lose Appeal in California Court Over Whether Drivers Should be Employees (2020), https://www.sfchronicle.com/business/article/Uber-Lyft-lose-appeal-in-California-court-case-15668885.php#:~:text=Uber%20and%20Lyft%20have%20lost,drivers'%20employment%20status%20under%20AB5.

^[12]Preetika Rana, Wall Street J., California Voters Exempt Uber, Lyft, DoorDash From Reclassifying Drivers (2020), https://www.wsj.com/articles/california-voters-exempt-uber-lyft-doordash-from-having-to-reclassify-drivers-11604476276.

^[13] Sam Harnett, KQED, Prop. 22 Explained: Why Gig Companies Are Spending Huge Money on an Unprecedented Measure (2020), https://www.kqed.org/news/11843123/prop-22-explained-why-gig-companies-are-spending-huge-money-on-an-unprecedented-measure.

^[14] Greg Bensinger, The New York Times, Other States Should Worry About What Happened in California (2020),https://www.nytimes.com/2020/11/06/opinion/prop-22-california-labor-law.html.