Why it matters

In a decision with potentially significant implications, a New York administrative law judge (ALJ) held that Uber drivers are employees of the ride-sharing company. The case arose after three drivers had their accounts deactivated and sought unemployment benefits. Uber contended that because the drivers set their own schedules, selected their work areas, were not required to report absences and were not provided with fringe benefits, they should be considered independent contractors. But the ALJ disagreed, finding that Uber did not use an “arms’ length approach as would typify an independent contractor arrangement,” instead demonstrating substantial involvement with the drivers. “I find that while there are some indicia of claimant’s independence, the overriding evidence establishes that Uber exercised sufficient supervision, direction and control over key aspects of the services rendered by claimants such that an employer-employee relationship was created,” the ALJ wrote. Importantly, she added that her decision applied not just to the three drivers involved in the case but “others similarly situated” as well. Uber—which has been battling the issue across the country with mixed results—said it intends to appeal the decision.

Detailed discussion

Are Uber drivers employees or independent contractors? Three New York drivers sought unemployment benefits after their accounts with the ride-sharing service were deactivated. Uber balked, arguing that the drivers were independent contractors. The state’s Department of Labor issued an initial determination holding that the drivers were eligible to receive benefits, and Uber requested a hearing to appeal.

Following the hearing—complete with testimony from the drivers and Uber representatives—ALJ Michelle Burrowes overruled Uber’s objection and found that the drivers were employees.

The ALJ walked through the process of becoming an Uber driver, explaining the “on-boarding process” beginning with the requirement of certain documents (a driver’s license, vehicle registration and a license from the New York City Taxi & Limousine Commission). Drivers were shown a video explaining how the Uber app works and depicting best practices guidelines, such as maintaining a clean vehicle and wearing professional attire.

Uber also published a Code of Conduct for its drivers, setting forth the minimum standards of conduct to which it expects both riders and drivers to adhere, with an explanation that failure to do so risks deactivation of access to the app. In addition, Uber published a Welcome Packet, described as containing “essential information for new Uber partners” and maintained online support resources for drivers.

Drivers needed a vehicle and smartphone to provide rides through the app, with Uber compiling a list of the vehicles it deemed acceptable. For those looking to lease their vehicles, Uber referred drivers to an affiliated third party and, in one case, intervened when a driver became delinquent, negotiating with the lessor for an alternative payment schedule. Uber also provided one driver with a smartphone and another with a phone charger and cable.

When a rider was picked up, the Uber app suggested a route, but drivers were expected to follow the route suggested by a rider, if given; the company also imposed rules about how long drivers had to wait for a rider. During the time period drivers are logged in to the app, Uber has the capacity to collect and review data regarding their activities, such as their acceptance and cancellation rates, the ALJ noted. Drivers are expected to accept 90 percent of ride requests received.

The company did not provide drivers with paid vacation, sick leave, health insurance coverage or other fringe benefits, nor did Uber impose a work schedule on the drivers. Instead, drivers autonomously decided when, where and how long they would work. Drivers were allowed to procure rides from Uber’s competitors and had the ability to sub-contract drivers if they wanted.

After relating all these facts, the ALJ found the evidence demonstrated “that Uber exercised sufficient supervision and control over substantial aspects” of the drivers’ work. “Uber did not employ an arms’ length approach to the claimants as would typify an independent contractor arrangement,” Burrowes wrote. “Uber remained involved with the means by which claimants provided transportation services for its Riders,” such as requiring compliance with a list of approved vehicles.

“Additionally, Uber does not dispute that when [two of the] complainants lacked proper credit to secure their own vehicles, Uber not only referred them to their third-party affiliates to lease vehicles without credit, but also Uber took the additional step of withholding monies from these claimants’ fares and making lease payments on their behalf. Uber even intervened when [one claimant] was delinquent in his lease payments to the third-party lessor, to arrange an alternate payment plan … to address his arrears.”

The ALJ rejected Uber’s position that the drivers signed a contract designating them as independent contractors as well as its characterization of the company as simply “a technology company that generates leads for drivers.”

Uber set a mandatory wait time for riders before leaving a pickup site, the ALJ noted, retained the sole discretion to determine if that rider would be charged a wait fee, and had complete control over the fare for the ride, which was calculated by Uber’s app algorithm.

Further, Uber continuously monitored its drivers, Burrowes found. “Uber took steps to modify the claimants’ behavior, as typical in an employer-employee relationship,” the ALJ said, publishing several documents including a Code of Conduct, which warned drivers that if they failed to accept 90 percent of all ride requests, they could face deactivation.

“Uber also used its Riders’ responses on its five-star rating system … to monitor and evaluate a Driver’s performance in providing ride service and to determine if that Driver’s rating was unacceptable such that he should be deactivated from the app,” the ALJ wrote.

A review of the record showed that each driver was “subjected to substantial supervision and control by Uber,” Burrowes said. “I find that while there are some indicia of claimant’s independence, the overriding evidence establishes that Uber exercised sufficient supervision, direction, and control over key aspects of the services rendered by claimants such that an employer-employee relationship was created. I conclude, therefore, that the claimants, and others similarly situated, are/were employees of the employer, Uber.”

To read the decision, click here.