Is a Gig Worker Considered an Employee under the Federal Labor Standards Act?

Transcription

1 Is a Gig Worker Considered an Employee under the Federal Labor Standards Act? Robert E. DeRose, Esq. Barkan Meizlish Handleman Goodin DeRose Wentz, LLP Columbus, Ohio Table of Contents Is a Gig Worker Considered an Employee under the Federal Labor Standards Act? Lawson v. GrubHub, Inc., No. 15-CV JSC, 2017 WL , at *8 (N.D. Cal. July 10, 2017) O Connor v. Uber Techs., Inc., 82 F. Supp. 3d 1133 (N.D. Cal. 2015) Is a Gig Worker Considered an Employee i

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3 Is a Gig Worker Considered an Employee under the Federal Labor Standards Act? Robert E. DeRose, Esq. Barkan Meizlish Handleman Goodin DeRose Wentz, LLP Columbus, Ohio The question of whether or not a gig worker is considered to be an employee within the standards of the FLSA is a question that must be addressed on a case-by-case basis. The topic of the misclassification of individuals as independent contractors rather than employees is an important topic because the distinction between an individual being considered an independent contractor versus an employee alters that individual s rights in regard to wages, overtime, benefits, etc. Many employers engaged in the gig economy, such as Uber, Lyft, and GrubHub, classify their workers and independent contractors. The FLSA aims to extend the title of employee to as many workers as possible. However, courts have found that this distinction in classification must be made by considering a set of factors rather than one overarching rule or factor. Within the gig economy, gig workers are workers who are hired through internet app-based programs, such as Uber, Lyft, and GrubHub. This type of employment gives its workers the ability to engage in temporary employment either between traditional jobs or as secondary, part-time employment in addition to other full-time employment. While there can be benefits to this type of employment, gig workers are deprived of some of the basic worker protections afforded by the FLSA. Gig workers, when engaged as independent contractors, are not subject to minimum wage regulations and overtime compensation under the FLSA; they are not covered by federal antidiscrimination laws or have the ability to engage in collective bargaining; and they are unable to access paid sick and vacation leave. It is estimated that between 1.2 million and 1.9 million Americans are now employed within the gig economy. As a gig worker, individuals are mostly classified as independent contractors by their employers. Because many companies that use gig workers are aware of the distinctions between an employee and an independent contractor, many companies require individuals to sign agreements in which the worker explicitly acknowledges that he or she is an independent contractor rather than an employee. While many businesses within the gig economy require these types of agreements, these agreements do not determine or control whether the workers is not considered an employee under the FLSA. Is a Gig Worker Considered an Employee 1

4 Courts have held on numerous occasions that there is no single rule or test for determining whether an individual is an employee or an independent contractor. Instead, they have set out a series of factors to consider, referred to as the economic reality test. Among the factors that courts consider important are: 1. The extent to which the work performed is an integral part of the employer s business; 2. Whether the worker exercises managerial skills and, if so, whether those skills affect the workers opportunity for profit and loss; 3. The relative investments in facilities and equipment by the worker and the employer, such that they appear for profit and loss; 4. The worker s skill and initiative such that he or she exercises independent business judgment; 5. The permanency of the worker s relationship with the employer; and 6. The nature and degree of control by the employer. U.S. Department of Labor (DOL) Wage and Hour Division, Fact Sheet #13 (May 2014). In In re FedEx, the Court was tasked with determining whether improperly classifying delivery drivers as independent contractors rather than employees was a violation of the Kansas Wage Payment Act (KWPA). The Kansas Supreme Court found that the plaintiff drivers were in fact employees of FedEx as a matter of law under the KWPA. The factors that the Court considered included economic reality considerations, while maintaining the primary focus on an employer s right to control and held that the test is the tool to be used in Kansas to determine whether an employer/employee relationship exists under the KWPA. In re FedEx Ground Package Sys., Inc. Employment Practices Litig., 792 F.3d 818, 820 (7th Cir. 2015). The court in Borello concluded that strong evidence in support of an employment relationship is the right to discharge at will without cause. S.G. Borello & Sons, Inc. v. Department of Indus. Relations, 48 Cal. 3d 341, 350, 769 P.2d 399, 404 (1989). However, the court found that there are additional factors that must be weighted in determining whether an individual is considered an employee or an independent contractor. These factors include: (a) whether the one performing services is engaged in a distinct occupation or business; (b) the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision; (c) the skill required in the particular occupation; (d) whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work; (e) the length of time for which the services are to be performed; (f) the method of payment, whether by the time or by the job; (g) whether or not the work is a part of the regular business of the principal; and (h) whether or not the parties believe they are creating the relationship of employer-employee. Id. at 351. While the court did find that there were a number of factors that need to be considered when distinguishing between an employee and an independent contractor, the court noted that these factors have to be used in combination with each other and their particular combinations and weights are what will ultimately provide a decision as to the individual s status. Given the undisputed facts that were presented in the case, the Kansas Supreme Court found that the FedEx drivers were considered employees for purposes of the KWPA. Id. at Advanced Employment Law Seminar

5 1. Lawson v. GrubHub, Inc., No. 15-CV JSC, 2017 WL , at *8 (N.D. Cal. July 10, 2017) The distinction between an employee and an independent contractor is paramount when determining what rights the individual is entitled to enjoy. The plaintiff in Lawson contends that he is an employee of GrubHub rather than an independent contractor, and he is thus entitled to certain labor protections. The court held that the important question in making this determination is not how much control a hirer exercises, but how much control the hirer retains the right to exercise. The right of control need not extend to every possible detail of the work; rather the relevant question is whether the employer retains all necessary control over the worker s performance. Lawson v. GrubHub, Inc., No. 15-CV JSC, 2017 WL , at *4 (N.D. Cal. July 10, 2017). Here, one of the main questions that the court seeks to answer is exactly how much control an employer had the right to exercise over an individual. The plaintiff in Lawson did assert strong cases for why he was an employee. Among other claims, plaintiff asserted that GrubHub had the right to terminate him at will, and GrubHub required him to sign up to work during GrubHub-approved shifts. Id. at 4. While there are factors weighing in favor of the plaintiff in Lawson, there are also factors that weigh in favor of the plaintiff being and individual contractor. These factors include the fact that the plaintiff had to supply his own equipment (vehicle and a smartphone), the plaintiff was not required to wear GrubHub clothing, and the fact that he was not required to work in a particular location or remain in a particular area when he was listed as available. Id. at 6. Because these are factors weighing in favor of the plaintiff both being considered an employee and an independent contractor, a reasonable trier of fact could find in favor of either side given the number of factors that must be considered. The court ultimately decided to deny GrubHub s motion for Summary Judgment. The court found that there were material issues of disputed fact as to whether the plaintiff should have been treated as an employee. Because some of the factors they considered cut in favor of the plaintiff being an employee and some cut in favor of the plaintiff being an independent contractor, the ultimate decision as to the plaintiff s classification had to be made by a jury trial. 2. O Connor v. Uber Techs., Inc., 82 F. Supp. 3d 1133 (N.D. Cal. 2015). The court in O Connor was charged with ruling on Uber s Motion for Summary Judgment and determining whether drivers for Uber were misclassified as independent contractors and were entitled to the protection of California Labor Code. Under California law, once a plaintiff comes forward with evidence that he provided services for an employer, the employee has established a prima facie case that the relationship was one of employer-employee. O Connor v. Uber Techs., Inc., 82 F. Supp. 3d 1138 (N.D. Cal. 2015). Much like other courts that have weighed in on this issue, the court here found that the most significant consideration is the putative employer s right to control work details. Id. at While the right to control is important, the control test cannot be the only deciding factor. Is a Gig Worker Considered an Employee 3

6 The court in O Connor uses the Borello factors listed above to analyze the issue at hand. The plaintiff makes a few persuasive arguments for why he is an employee of Uber. These arguments include that he provides a service to Uber because, despite Uber s contention, Uber is primarily a transportation company. The plaintiff also points out that Uber exercises significant control over the amount of any revenue it earns by setting its fairs and charging riders unilaterally. Id. at Uber also exercises substantial control over its drivers by requiring certain qualifications and credentials before one becomes partners with Uber. While the plaintiff did make some compelling arguments in his favor, simply meeting a few of the Borello factors does not singlehandedly prove that one is an employee rather than an independent contractor. According to the California Supreme Court, the determination of employee or independent contractor status is one of fact if defendant upon resolution of disputed evidence or inferences. The Court notes: if we are to have multiple factors, we should also have a trial. A fact-bound approach calling for the balancing of incommensurables, an approach in which no ascertainable legal rule determines a unique outcome, is one in which the trier of fact plays the principal part. That there is a legal overlay to the factual question does not affect the role of the trier of fact. Id. at In response to the plaintiff s arguments for Uber having the right to control, Uber asserts that the control element is not met because drivers can work as much or as little as they like as long as they meet frequency standards. Uber also contends that the instructions in their employee handbook are simply quality control suggestions. The court notes that a reasonable jury could find that the numerous secondary factors cut in favor of finding an employment relationship. Because of this, the court denied Uber s Motion for Summary Judgment. Since the contention about whether an individual is classified as an employee or an independent contractor must be decided by weighing a number of factors in relation to each other, that determination can only be made by a jury on a case-by-case basis. The distinction between an employee and an independent contractor is important to gig workers today because that distinction is what largely determines rights that gig workers receive from their employers. While many companies that are engaged in the gig economy require gig workers to sign agreements stating that they are independent contractors rather than employees, these agreements are not determinative of the fact that these workers are independent contractors rather than employees under the FLSA. The FLSA aim to classify as many individuals as possible as employees because of the benefits and protections that the classification as an employee affords. Because of the rise of the gig economy and the increasing disagreements surrounding the classification of gig workers, courts have had to weigh in on how to differentiate between independent contractors and employees. Courts have determined the factors outlined above as factors to consider in making the decision about whether a gig worker is an independent contractor or an employee. There is not one factor that is completely determinative of this issue; rather, all the aforementioned factors must be applied in tandem with each other and combined in order to reach a determination on 4 Advanced Employment Law Seminar

7 whether a gig worker is an independent contractor or an employee. Because these factors will cut differently in every situation, the determination must be made on a caseby-case basis. Due to the uniqueness of every gig workers situation, the evaluation as to whether an individual is an independent contractor or an employee is a question that can only be answered by applying the set of factors to each individual situation. Is a Gig Worker Considered an Employee 5