Bumpy Ride: How Rideshare Programs Are Challenging Worker Classification and Raising Questions About a Potential Need to Modernize Classification Standards

Rideshare services, which typically work by having users arrange rides using mobile apps on their phones with drivers who decide whether they want to provide a ride to a user at their discretion, have grown immensely in popularity over the last several years. This growth has not come without challenges, however, often coming from lobbying and other political efforts by taxi and entrenched transportation companies concerned about eroding market share. Another area of scrutiny affecting rideshare companies concerns their use of independent contractor relationships, as most drivers signing up with rideshare services are engaging with these companies as independent contractors.

As we have previously noted, the use of independent contractor relationships has come under increasing scrutiny in past years. Companies that get it wrong can face not only high stakes litigation, but also scrutiny from federal and state tax agencies, as well as labor organizations and pension boards. In theory, it is simple — employees work under someone else’s direction, receive wages and benefits, and are provided with the equipment needed to complete the job. Independent contractors supply their own tools, work for multiple people, do things their way, are hired temporarily, and receive a set fee. While the use of independent contractors remains proper under certain circumstances, classification of workers as employees or independent contractors will likely remain an area of significant litigation for years to come.

However, in the context of the rideshare industry, and while assessing whether rideshare drivers are employees or independent contractors, a California federal judge recently called worker classification and independent contractor laws “woefully outdated,” suggesting that the standards used under both federal and state law have not kept up with the constantly changing horizons made possible by the explosion of technology in the information age. The line between “employee” and “independent contractor” is often blurry, and the courts’ mercurial position on the matter puts employers in a precarious position.

A quick trip in a rideshare service car suggests how the employee-independent contractor distinction may be becoming outdated, as the California federal judge claimed:

Control Test

The courts have distilled the distinction between an employee and an independent contractor into a “control test.” In an employer-employee relationship, the person in charge has the right to control the employee, including what they do and how they do it.

In the case of a rideshare service, the question has to be asked: Who has control of the driver? The driver decides whether or not to pick a rider up and how to get to a destination. But the driver would not have been matched with a rider without the rideshare service, and the service would not exist without the drivers. It would be a platform without a purpose. Some rideshare services also train their drivers and restrict their schedules, if the number of drivers out on the road is too high.

Worker Engaged in a Distinct Occupation or Business

This part of the test seems to harken back to a classist society distinguished by professionals and laborers. Where does the rideshare service driver fit? Is rideshare driving a distinct occupation?

Work Done by a Specialist, Usually Without Supervision

Supervision may be lacking. The rideshare driver can decide who to pick up and how to get to the destination. But technology also allows the rideshare company to constantly monitor where drivers are when they are logged in, and how customers are ranking them.

Supplying Tools and Supplies

The rider gets into the driver’s car, and the driver uses her phone to get the rider to the destination. But without the online platform, the rider would very likely never have gotten a lift in the first place.

Length of Time Work Is Performed

The rideshare driver can decide not to drive, but that might hurt her chances of getting scheduled to pick up new riders. The driver can also work through the rideshare company indefinitely, if not fired, which contrasts with the one-time, temporary status of an independent contractor.

Method of Payment

For some rideshare services, the driver is paid at the end of the week, not after each ride. The driver is not paid minimum wage, and the rideshare company typically takes a flat administrative fee off of each ride. So is it more like a wage or a one-time fee?

Is the Work Part of the Regular Business?

Once again, the rideshare company could not exist without drivers. But, it is also a technological platform similar to eBay or Amazon, where the rideshare company is arguably there merely to process the transaction.

Do Parties Believe They Are Creating an Employer-Employee Relationship?

Rideshare drivers typically sign some type of agreement stating that they are not employees. But, courts have been hesitant to make a classification decision based solely on the terms of a contract, instead of looking at all of the factors.

As technology has caused commerce to evolve in many industries, and as seen particularly from the explosion of rideshare services and users, the old classification and independent contractor tests can pose more questions than they provide answers. Although we suspect that the current standards test are unlikely to undergo any formal revisions in the near future, it may become increasingly hard to argue that revisions are necessary to account for the ways technology continually brings people together, and creates opportunities for businesses and entrepreneurs to use online platforms. Companies making novel and creative use of technology tools to give people more freedom, and using independent contractors to make it work, could be in for a bumpy ride as these issues play out.