Uber, Lyft 'misclassifying' workers as independent contractors, lawsuit claims

Now two class-action lawsuits in the U.S. are looking to upend this new model, charging that ride-sharing giants Uber and Lyft are wrongly classifying their workforce as independent contractors in order to pocket more profits rather than cover worker benefits.

• California Uber driver deemed an employee
• New forms of regulation urged for the sharing economy
• Sharing economy income is taxable

Independent contractors must also pay out-of-pocket for business expenses (which they are meant eventually to claim on tax returns). Ride-share drivers, for example, can be responsible for gas, insurance, maintenance and parking costs.

What's at issue in these cases is the degree to which Uber and Lyft set the work standards and level of services for their independent contractors, in effect treating them as they would an employee.

Expense reimbursement demanded

"We've seen a lot of companies in a lot of different industries try and get away with this," says Shannon Liss-Riordan, a lawyer who fought for employee status for delivery drivers, cleaners and exotic dancers. "We're just seeing a new wave of companies that are pushing the envelope."

Liss-Riordan launched two class-action lawsuits on behalf of Uber and Lyft drivers in California, claiming the ride-sharing services misclassified them and demanding a refund for all their work-related expenses.

When you're trying to start a company quickly, it makes a lot of sense to do that- Marcela Sapone, Hello Alfred CEO and co-founder

In Canada, as well as in the U.S., one of the main factors separating an employee from an independent contractor is how much a company controls the workers' services, employment lawyers say.

Uber and Lyft exercise a high-degree of control, says Liss-Riordan. They standardize services by setting rates, and issuing guidelines on how drivers behave and maintain their vehicles.

Other factors, employment lawyers say, can include whether these independent workers conduct services that are a core part of the hiring company's business, and whether they intended to set themselves up as independent contractors in the first place or more in a direct, employee-like relationship with a particular company. Other factors can include how long a person has worked for a particular company like Uber and how dependent that individual is on that source of income.

The U.S. Department of Labour released guidelines last week, clarifying that "most workers are employees" under the Fair Labour Standards Act. The department said an increased number of workplaces are misclassifying their employees. 

Liss-Riordan believes both companies push past the limits of what's acceptable for independent contractors, and anticipates judges will certify both her filings as class-action suits later this year for a trial in 2016.

​Lyft did not respond to request for comment on the lawsuit; Jessica Santillo, an Uber spokeswoman, reiterated the company's position that drivers enjoy flexibility and control over their own livelihood.

No Canadian legal precedent

If judges rule in favour of the California drivers, Uber and Lyft will not only have to reimburse their past expenses, but also change how they operate — at least in that state.

They may also have to deal with such workplace niceties as unemployment insurance, worker compensation and the right to unionize, Liss-Riordan says.

That kind of ruling may drive interest for similar action in Canada if Uber drivers felt they would benefit more from employee protections than independent contractor flexibility, says Daniel Lublin, a partner at employment law firm Whitten & Lublin in Toronto and co-author of HR Managers Guide to Independent Contractors in the Workplace.

Still, he doubts Uber drivers would race to get such a ruling, and with little legal precedent in Canada "it's not clear" what decision could be reached here.

While Canadian law is "generally pretty employee favourable," Lublin says, it's unlikely to categorize all Uber drivers as employees, especially those who have other jobs. But, he says, long-time Uber drivers who don't have another source of income would have a strong case.

In Canada, he says, Uber drivers could also claim to be part of a third, hybrid employment category, called dependent contractors, who are entitled to severance pay if they're fired.

Lublin anticipates some Uber drivers could make successful claims for severance pay if they find themselves out of work if the company is forced to adhere to strict regulations.

But not everyone interprets Canada's existing legal framework that way.

"These individual drivers are clearly in business for themselves," says Mark Fletcher, an employment lawyer and partner at Toronto-based Grosman, Grosman & Gale LLP.

Uber drivers have a high degree of control over their work, supply their own equipment and enter the arrangement wanting to be independent contractors, he says.

"That's the plan: we're in business for ourselves, and we want to have the freedom and the ability to drive when we want. We're not in business for Uber."

As he sees it, Canadian law would determine these workers are independent contractors.

Uber, Lyft not alone

The target of these lawsuits, Uber and Lyft, are among several that offer on-demand services using independent contractors — though, most operate exclusively in the U.S.

TaskRabbit outsources chores customers don't want to do to independent contractors. Through Postmates and DoorDash, independent contractors deliver restaurant meals.

These companies have a choice to "read the letter of the law versus the spirit of the law," says Marcela Sapone, the CEO and co-founder of Hello Alfred, a personal butler service that operates in Boston and New York and is expanding to four other locations soon. 

Many seem to determine their workers are in between the two classifications, she says, and opt to call them independent contractors because that offers savings and flexibility.

"When you're trying to start a company quickly, it makes a lot of sense to do that," she says.

When her company launched in September 2014, all her so-called Alfreds were independent contractors. However, she knew she wanted to switch them to employees so she could exercise more control by providing ongoing training and equipment, and determining their work hours. By November 2014, all Alfreds became employees.

The switch added an extra 20 to 30 per cent to the company's overall cost structure, says Sapone. But, she's happy with her choice.

"We are likely to avoid any ... fees or penalties or lawsuits," she says.

While Uber and other companies have managed to avoid legal recourse for a long time, lawyer Liss-Riordan believes many companies are now questioning their employee classification practices.

In early June, the California Labour Commission ruled against Uber in a case that suggests the way the law is interpreted may be changing.

The commission found that Uber driver Barbara Ann Berwick should be considered an employee and reimbursed her more than $4,000 US in outstanding expenses and interest. (In August 2012, the same commission ruled in favour of Uber in a similar case.)

Uber is appealing the Berwick ruling and some, like Fletcher, call this "an outlier decision." But, Liss-Riordan believes it signals a change.

"They're realizing ... the legal hot water it's getting these companies into," she says.