Last Friday, Homejoy—a startup that provided on-demand house cleaners—announced that it will be shutting down at the end of July. In an interview with Re/Code, Homejoy’s CEO attributed its fall to the recent Uber decision, further confirming the belief of many that the Uber decision poses a significant threat to companies in the “sharing economy” that rely on being identified as “technological platforms” that facilitate private transactions between independent service provider partners and consumers to avoid certain laws and regulations. Such identification may, for instance, allow companies to properly classify their service provider partners as independent contractors to mitigate costs of compliance with laws and regulations that govern employer/employee relationships. This article considers a few user-directed features or offerings that could help tip the scale in their favor.
The Uber Decision (also known as “the Berwick Decision”)
Prior decisions by labor commissions in California and several other states appeared to have consistently upheld the classification by Uber and many others in the sharing economy of their service provider partners—that is, until this past June, when a California Labor Commissioner held that former Uber driver Barbara Ann Berwick was an Uber employee—not an independent contractor. Although the Labor Commissioner’s holding applies only to Berwick, and the holding itself is non-binding on other similar cases (which could hold otherwise), Uber has appealed the Berwick ruling, setting the stage for an appeal case before California state courts whose decisions may have greater legal impact.
In assessing whether an employment relationship exists, the right to control work details is the most significant criteria,, but a number of secondary indicia of an employment relationship are also important factors.. In the Berwick decision, for instance, the Labor Commissioner relied heavily on a determination that Uber’s business was to provide transportation services to passengers and Berwick’s work (i.e., transporting passengers) was integral to that business. In support of its determination (and against Uber’s contention that it was a neutral technological platform), the Labor Commissioner found that Uber was substantially involved in “every aspect of the operation,” including vetting prospective drivers, controlling the tools they used (e.g., vehicle age must no more than ten years old), supplying the smartphone app that is essential to the work of transporting passengers, and monitoring their approval ratings and terminating their access to the smartphone app if their ratings fall below a certain threshold.
With respect to the Berwick case, had the Labor Commissioner categorized Uber as a neutral technological platform (as opposed to a transportation service company), it is likely that the outcome would have been different. Below, we explore some app features or offerings that (had they existed on the Uber app) may have changed the outcome of the case. For more details on the Berwick case and its potential legal and business implications, see our client alert “Uber Hits a Speed Bump in California: Labor Commissioner Rules Driver is an Employee.”
A Technological Platform – Some Additional Considerations
Enabling consumers to control selection of their service providers (e.g., drivers) through user-controlled filters
If Uber’s platform neither required that drivers use vehicles of a certain age range nor terminated drivers’ access to its smartphone app based on their user approval ratings, at least two of the factors that the Labor Commissioner relied upon for its decision would no longer support it.
For example, if the Uber app utilized default filters that exclude drivers having vehicles outside of a certain age range or low user approval ratings from access to consumer users who use the default filters, but enabled consumer users to override the default filters, then control of this aspect (i.e., selecting drivers for consumer users) may be deemed to be in the hands of the consumer users (instead of Uber). Such user-controlled filters may also indicate less involvement on the part of Uber in transporting consumer users.
Charging service provider partners and/or consumers for premium features
If Uber obtained revenue from subscription fees for premium features of its smartphone app, these revenue-generating features may have further supported Uber’s contention that it is nothing more than a neutral technological platform.
For example, if Uber charged drivers and/or consumer users a subscription fee for the ability to set or request their own rates (e.g., asking for 10% more than a default rate, 10% less than the rate, etc.) or to access premium information such as rates currently set by drivers in the immediate area or rates that consumer users in the immediate area are currently accepting, then Uber could point to these revenue-generating features to further demonstrate that its business is based on offerings unrelated to actually transporting consumer users or at least better support its contentions that the drivers control their own services.
Enabling service provider partners and/or consumers to set/request rates
If Uber allowed drivers to set their own rates (or allowed users to request certain rates that drivers can accept, ignore, or reject) via the smartphone app, such app features might help Uber better qualify for its desired classification of its drivers pursuant to California’s own guidelines. In fact, California’s Employment Development Department indicates in its guidelines that one consideration for determining whether a driver is an employee or an independent contractor is whether the driver sets his or her own rates or makes other “business decisions that would enable him or her to earn a profit or incur a financial loss.”
While the extent of impact of the Berwick case on other on-demand businesses in the sharing economy is left to be seen, employing user-directed features like those discussed above may benefit those businesses looking for a clearer path.