Amidst the broad range of issues encompassed in the field of labor law is a constant inquiry of whether a worker should be classified as an independent contractor or an employee. This analysis informs contract terms, company policies, wage and workers’ compensation disputes, and numerous other questions that arise during the course of a person’s employment. While the line between employee and independent contractor might seem obvious, this is rarely true. Litigation frequently turns on this issue, and parties often disagree on the proper classification.
A worker’s classification as either employee or independent contractor has significant legal consequences.
There are no exact definitions for the terms “employee” and “independent contractor.” Rather, the courts consider multiple factors when determining worker classifications on a case-by-case basis. The U.S. Supreme Court has held that the following factors are significant to this inquiry: 1) the extent to which the services rendered are an integral part of the principal’s business; 2) the permanency of the business relationship; 3) the amount of the alleged contractor’s investment in facilities and equipment; 4) the nature and degree of control by the principal over the work performed; 5) the alleged contractor’s opportunities for profit and loss; 6) the amount of open market competition with others required for success of the claimed independent contractor; and 7) the degree of independent business organization and operation. No one factor is dispositive, and courts nationwide have held that such determinations are dependent upon the facts of each particular case.
A worker’s classification as either employee or independent contractor has significant legal consequences. The Fair Labor Standards Act protects private-sector workers through its provisions for minimum wage standards and overtime pay. However, the Act only recognizes traditional employment relationships, meaning that only those workers who are classified as “employees” are covered. Since independent contractors are typically seen as being in business for themselves, the Act’s provisions do not protect these workers.
In North Carolina, many worker classification problems arise within the state’s prevalent farming and construction industries. For example, a common problem within the construction industry occurs when contractor-employers hire workers who they wish to claim as contract laborers. These workers commonly do not meet the test of independence, so they are often classified as employees. While there is no exact test, level of independence is frequently considered. Moreover, the North Carolina Department of Labor states that an employee must be a person who follows the usual path of an employee and is dependent on the business that employs him or her.
Uber’s relaxed vibe also extends to its employment structure; workers are given flexibility to set their own hours based around their existing schedules.
Uber, a San Francisco-based company that has revolutionized the cab industry, presents a unique situation regarding worker classification. The company, which operates in more than 120 cities nationwide, including Raleigh, North Carolina, allows customers to “call for a ride” by using a smart-phone application. Uber’s relaxed vibe also extends to its employment structure; workers are given flexibility to set their own hours based around their existing schedules. Additionally, Uber drivers are not licensed as chauffeurs, nor do they drive marked taxicabs. Rather, workers typically drive their own cars or vans to pick up customers. This has led to the issue of whether these drivers are independent contractors or employees of the company.
A federal court will soon decide this issue in O’Connor v. Uber Technologies, Inc., a class action lawsuit filed in the U.S. District Court for the Northern District of California. The O’Connor plaintiffs are Uber drivers who allege that they have been cheated out of a twenty percent gratuity paid by customers. According to the drivers, customers intended and believed that they were tipping their drivers, but the total gratuity was not paid to those workers. The action is currently pending class certification.
In order for the O’Connor plaintiffs to succeed in their claim, the drivers must prove that they are Uber employees, rather than independent contractors. Each individual member of the class, including the class representative, must prove the existence of an employment relationship with Uber in order for the class to be certified. Similar cases have also been filed in Massachusetts and Illinois.
Interestingly, the same federal court that will decide O’Connor also considered this very issue in 2013 in Alatraqchi v. Uber Technologies, Inc. In that case, Uber contended that its drivers are independent contractors, not employees. The court neither agreed nor disagreed, and the case was decided on other grounds. However, the court noted that Uber’s defense lacked the specificity required to refute prima facie evidence of an employment relationship, had the issue been determinative.
According to the Alatraqchi court, the principal test of an employment relationship is whether the employer has a right to control the means and manner of how the desired result is to be accomplished.
In these cases, the plaintiff bears the burden to establish the existence of an employment relationship. According to the Alatraqchi court, the principal test of an employment relationship is whether the employer has a right to control the means and manner of how the desired result is to be accomplished. Also significant are factors such as the employer’s right to discharge at will, the type of occupation and skill required, whether the worker supplies his or her own tools to complete the job, the method of payment, and the duration of employment.
Uber’s demonstrated success and continued growth has inspired other companies to structure their hiring and recruiting in similar ways. This relaxed business model allows for workers in fields like computer programming to make their own hours and in some cases, work from home. However, while this employment structure is understandably popular with many workers, it further complicates the already blurry line between employee and independent contractor.
For this reason, the O’Connor court’s classification of the plaintiff-workers could have national significance. Although most worker classification factors and labor standards are determined by individual states’ departments of labor, worker complaints often wind up in federal court. Given the trend favoring company structures such like Uber’s and the related increase in these types of employment disputes, the O’Connor drivers’ classification could influence future decisions at both the federal and state levels.
If the Uber drivers are determined to be independent contractors, it is likely that other similarly situated workers would be considered the same. On the contrary, if the drivers are classified as Uber employees, other employers will likely be held to similar standards in the future. Should that occur, it is also possible that employers might attempt to change the duties or nature of these types of workers in order to sidestep the requirements of the Fair Labor Standards Act.
Regardless of the Uber drivers’ ultimate classification, however, a federal court’s ruling as to the status of these unique workers should provide some guidance as to whether other workers in similar situations, and in North Carolina, are employees or independent contractors.