?Uber recently agreed to pay $8.4 million to settle a class-action lawsuit with California drivers who claimed they were misclassified as independent contractors, rather than employees. The U.S. District Court in the Northern District of California approved the settlement on July 21.
The settlement applies to drivers who used the Uber Rides App in California between Feb. 28, 2019, and Dec. 16, 2020, or who used the Uber EATS App in California between June 28, 2016, and Oct. 7, 2021, and who opted out of Uber’s arbitration agreement. It does not reclassify drivers as employees.
“These kinds of cases are becoming very common in California,” said Jennifer Shaw of Shaw Law Group in Sacramento, Calif. “Independent contractor issues have been in the news for several years, but we are seeing more cases being filed.
“One of the most important takeaways is that intent does not matter,” she added. “There are very strict requirements for establishing valid independent contractor arrangements, and if they aren’t satisfied, that’s the end of the story. Many of our clients push the envelope when it comes to these kinds of arrangements, which is certainly their prerogative. But it’s becoming more and more difficult to avoid liability for misclassification claims.”
Uber, headquartered in San Francisco, has about 1 million U.S. drivers and about 29,000 employees worldwide. It posted more than $8 billion in revenue in the second quarter of this year.
“This case was very public and heavily litigated, and Uber arguably was not in a great position to ultimately win the case,” Shaw noted.
Background
Signed into law in September 2019, California Assembly Bill 5 states that workers must be classified as employees, unless the employer demonstrates that they are:
- Free from the employer’s control and direction in connection with work performance.
- Performing work that is outside the employer’s usual course of business.
- Customarily engaged in an independently established trade, occupation or business.
This law “made properly classifying workers as independent contractors much more difficult by conclusively establishing a presumption that a worker is an employee, placing the burden on employers to prove otherwise and by applying a more stringent test for workers to qualify as contractors,” said Netta Rotstein, an attorney and HR consultant at Engage PEO, an outsourcing firm in Los Angeles. “The law’s constitutionality continues to be challenged in court, and while the verdict is still out, the number of misclassification cases is expected to rise.”
In 2020, California voters approved Proposition 22, which said ride-share companies could legally classify their drivers as independent contractors, rather than employees. On Aug. 20, 2021, a California superior court ruled the proposition was unconstitutional and unenforceable. Proposition 22 supporters appealed that decision.
In addition, Uber sued in July 2021, asking a federal appeals court to reject Assembly Bill 5 as unconstitutional and block its enforcement.
Heavy Penalties
Under California law, employers can face civil penalties between $5,000 and $25,000 per violation if they intentionally misclassify workers as independent contractors. They also might have to pay back payments to the misclassified employees, attorney fees and court costs.
“The distinction between an independent contractor and an employee is extremely important because independent contractors are not afforded many of the rights that employees enjoy,” Rotstein said. “For example, an independent contractor is not required to be paid minimum wage and overtime, and they are not entitled to receive mandatory meal and rest breaks, reimbursement of business expenses, and compliant itemized wage statements.”
Some ride-share drivers want to be employees, while others prefer to remain independent contractors because of the autonomy and flexibility in hours. Independent contractors typically have more flexibility than employees, while employees have more legal protections.
“The Uber litigation indicates that fighting these cases can be very costly even if the ultimate result is a settlement or even a win in the company’s favor,” Rotstein noted.