Why it matters

The question of whether drivers for the ride-sharing app Uber are employees or independent contractors continues to keep courts and regulators across the country busy. While the Florida Department of Economic Opportunity determined that drivers are independent contractors—reaching a contrary conclusion from similar authorities in California and Oregon—a federal court judge in California has certified multiple classes of roughly 160,000 drivers in a wage suit. A group of drivers sued Uber for tips and expense reimbursement under state law and moved to certify the class. The judge had earlier certified a class seeking tips the plaintiffs alleged Uber withheld, and in the latest ruling, certified a subclass of drivers seeking reimbursement. In addition, the court rejected the employer's attempt to enforce an arbitration agreement, ruling that it was unenforceable because it contained a non-severable waiver of Private Attorney General Act (PAGA) claims. Litigation looks to continue through 2016, with Uber already filing an appeal of the California decision and the Florida driver appealing the state agency's ruling.

Detailed discussion

Ride-sharing company Uber Technologies ended 2015 on a litigious note, with the issue of whether its drivers are independent contractors or employees, a hot topic for courts and regulators alike.

Several California drivers filed a putative class action alleging they were misclassified as independent contractors, requesting reimbursement for "all necessary expenditures or losses incurred … in direct consequence of the discharge" of their duties, as well as for the entire amount of any tips or gratuities "paid, given to, or left" by a patron.

In September, U.S. District Court Judge Edward M. Chen certified a class of approximately 160,000 Uber drivers seeking tips but denied certification on the claim for reimbursement.

The court also limited the time period for the class, expressing concern about drivers who signed an arbitration agreement in 2014 and 2015 that waived claims under the Private Attorney General Act (PAGA) and whether an individualized assessment of the economic means of the driver and the circumstances under which he or she accepted the arbitration agreement was necessary.

But subsequent case law changed Judge Chen's position. Based on the California Supreme Court's decision in Sanchez v. Valencia Holding Co., the court concluded that the PAGA waiver found in Uber's arbitration agreement was unenforceable on public policy grounds. As for the 2014 and 2015 agreements, the non-severable PAGA waiver rendered the entire arbitration agreement unenforceable, the judge added.

Uber argued that the non-severable PAGA waiver didn't ban all PAGA claims but only prevented such claims from being arbitrated, with the blanket PAGA waiver found in a different section that was severable. But the court found this contention circular, as "it is impossible to grammatically or linguistically sever the PAGA claims waiver without completely undermining arbitration itself." Because of the non-severable section of the agreement, the PAGA claim cannot be brought in arbitration, resulting in a driver having no forum in which to bring a PAGA claim, Judge Chen explained.

The court also found that severance would not be permitted as a matter of equity. "This is not a case where there has been performance, and voiding the contract will result in one party receiving an unfair windfall," the court wrote. "Instead, Uber has drafted a contract that deters ab initiodrivers from bringing representative actions. Any driver who reads the arbitration agreement will be misled into believing that they have no right to bring a PAGA claim, as the arbitration agreement not only outright prohibits representative actions, but requires that all disputes be arbitrated on an individual basis."

Uber told the court that the 2014 and 2015 arbitration agreements featured an opt-out provision and that drivers who failed to exercise this choice should not be permitted to avoid the results. But Judge Chen again disagreed. "Absent California authority to the contrary, the Court concludes that the PAGA waiver is an unenforceable pre-dispute waiver despite the opt-out provision," he wrote. "As a valid waiver can only be made after a dispute has arisen, the PAGA waivers contained in the 2014 and 2015 agreements are unenforceable against the subclass of drivers that the Court will certify in this order."

The court then certified a subclass of drivers seeking reimbursement for vehicle-related and telephone expenses. Such expenses constitute the majority of the money spent by drivers, the plaintiffs asserted, and will not cause individualized issues to predominate, even where drivers have unlimited data plans for their phones, the judge said.

Uber has already filed an appeal.

Taking a different approach to Uber's business model, the Florida Department of Economic Opportunity (DEO) sided with the ride-sharing company to find that drivers are independent contractors—and therefore not entitled to unemployment insurance from the state.

Considering the case of former driver Darren McGillis, the agency emphasized that Uber operates not as an employer but as a middleman or broker for transportation services.

"Uber is no more an employer to drivers than is an art gallery to artists," DEO Executive Director Jesse Panuccio wrote. "Just as technological advances have amplified the reach of social networks, [s]uch advances have also amplified the reach of commercial relationships through applications like Uber, [S]tubHub, Airbnb. . . . None of these commercial platforms would be in business without the goods and service providers who use the platforms, but that does not mean the providers are automatically employees of the platform company."

Reversing a determination from the Department of Revenue finding McGillis to be an employee of Uber, the agency said Florida law begins with review of the contract between the parties, which in this case specified that the driver was an independent contractor. The actual practice of the parties did not belie the agreement, the decision found.

While Uber requires some basic conformity from drivers (such as using a car less than 10 years old), "the Driver maintains autonomy over the most significant details of the engagement," such as when to work, what car to use and how to present it, how to choose passengers, and the speed and the route taken when driving.

"As a matter of common sense, it is hard to imagine many employers who would grant this level of autonomy to employees—permitting work whenever the employee has a whim to work, demanding no particular work be done at all even if customers will go unserved, permitting just about any manner of customer interaction, permitting drivers to offer their own unfettered assessments of customers, engaging in no direct supervision, requiring only the most minimal conformity in the basic instrumentality of the job (the car), and permitting work for direct competitors," according to the order.

Other factors—which party provides the instrumentalities and how drivers are paid—also pointed to independent contractor status. Although Uber is in business and provides lead generation for transportation services, it does not provide transportation services, the agency said. "Essentially, Uber is a middleman or broker for transportation services," Panuccio wrote. "This is related to and dependent upon provision of transportation services, but it is not the same thing. A broker is a distinct and common profession in the American marketplace."

The order distinguished contradictory decisions from California and Oregon based on differences in case law and a failure to recognize that "[t]echnological advances like the Internet and smartphones have provided new platforms for middlemen."

McGillis filed an appeal the following day.

To read the order in O'Connor v. Uber Technologies, click here.

To read the final order from the Florida Department of Economic Opportunity, click here.