Are Uber Drivers Employees or Independent Contractors?

The specific legal issue with Uber centers on whether the drivers should be ICs or Employees. The change affects the legal requirements of the company under state law and federal laws. Specifically, Uber would be required to meet state and federal minimum wage standards (FLSA), reimburse for costs incurred in the business (wear & tear on the vehicle, insurance, gasoline, etc.). It would also require withholding and employer matching of Payroll taxes, payment of SUTA, paying Worker's Compensation insurance, etc.

Explanation of Law: The determination of whether an individual is an employee or IC turns on the structure of the employment relationship and control. The greater the structure and control, the more likely it is that the individual is an employee.

Applying the Law to Facts: At this point, the California Federal Circuit Court is determining the issue. The judge refused to rule in favor of Uber as a matter of law and decided to allow the case to proceed to a jury. This is a big loss for Uber, as Uber did not want to have to argue the case to a jury. California is an extremely labor-friendly state. NC is not a labor-friendly state. It is not likely that the California ruling will immediately affect NC drivers until it is appealed to the Federal Circuit Court of Appeals. Even then, it is likely that the 4^th Circuit would have gone the other way (likely have gotten a summary judgment). If the case is challenged in a federal circuit court, then the holding will be applicable across the US.

Lets start by examining Ubers work structure. The drivers do not have a fixed-hour schedule (e.g., 9-5), fixed office, or a mandatory service requirement. All of these realities lean toward IC relationships. The control and structure Uber exercises or enforces over portions of the relationship that begins to look like an employee relationship are as follows:

• driving route,
• presentation of credentials,
• timing of pickup and drop-off,
• equipment used (qualifications of the car),
• app system for taking rides, and
• the payment of individuals (most important).

The 2 damning aspects for Uber is the collection of funds and payment of the drivers. Uber, however, controls the payment process and the amount that drivers receive (it is structured as a percentage of the fare). Further, Uber encourages riders to NOT tip the drivers. This is a very strong compensation control that leans away from IC status. If the drivers solely relied on tips the issue looks much more like an IC relationship. Compare the situation to cab owners (who are ICs) who often 1) own their own cab, 2) collect their own fairs, 3) receive their compensation through tips (the percentage award of fare is very low), 4) there is no required route, and 5) each individual cab is required to have a business tax ID, be an LLC, and have its own business license.

None of these aspects are present in Ubers case. A system that releases many of the controls above and follows some of the IC characteristic structure is likely to avoid characterization as employer of employees.