During the present pandemic, online facilitators of food-delivery services have thrived. For example, Instacart — which sends “shoppers” into supermarkets on customers’ behalf — has grown its business by 500%. By contrast, Uber and Lyft have struggled, but are beginning to see upticks in business in major metropolitan regions such as Philadelphia.
Meanwhile, these companies’ workers have suffered the slings and arrows of coronavirus exposure. Just a week ago, a 71-year-old woman, who drove for both companies, died from COVID-19 in San Diego.
Faced with this level of hazard, drivers are demanding recognition as employees of these ride-share firms, which have steadfastly treated them as independent contractors with few or no benefits.
For instance, Cunningham, et al. v. Lyft, Inc. [2020 WL 2616302 (D. Mass., May 22, 2020)] is a class-action suit in which Lyft drivers point to the extensive set of Lyft rules, under which they have labored since the pandemic started, as evidence of the company’s right of control … a key component of employee versus independent-contractor status. The litigants’ immediate goal is eligibility for benefits under the Emergency Sick Leave Act. That they have a shot at prevailing is suggested by another recent federal-court decision, this one out of Philadelphia.
In Razak v. Uber Technologies, Inc., 951 F.3d 137, Wage & Hour Cas.2d (BNA) 77, 956 (3d Cir., March 3, 2020), drivers brought their collective action against the ride-sharing company Uber, alleging violations of the Fair Labor Standards Act (FLSA), the Pennsylvania Minimum Wage Act (PMWA) and the Pennsylvania Wage Payment and Collection Law (WPCL). The U.S. District Court for the Eastern District of Pennsylvania granted summary judgment in favor of Uber, and the drivers appealed. As with the Lyft case, the relevant question before the Third Circuit was whether drivers for UberBLACK should be considered employees or independent contractors within the meaning of the FLSA, 29 U.S.C. §§ 201–219, and similar Pennsylvania state laws.
Independent transportation companies
In reaching its negative decision, the trial court laid out the determinative facts as follows: The plaintiffs—Ali Razak, Kenan Sabani, and Khaldoun Cherdoud—were Pennsylvania drivers who utilized Uber Technologies’ ride-sharing mobile phone application. In order for drivers to contract to drive for UberBLACK, they must form independent transportation companies (“ITCs”). Thus, the plaintiffs each owned and operated an ITC. Each ITC, in turn, enters into a Technology Services Agreement with Uber. The Technology Services Agreement includes a Software License and Online Services Agreement that allows UberBLACK drivers to utilize the technology service Uber provides to generate leads, as well as outlines the relationship between ITCs and Uber riders, ITCs and Uber, and ITCs and their drivers.
Uber also requires that drivers sign a Driver Addendum, which is a legal agreement between the ITC and the for-hire driver, before a driver can utilize the app. The Driver Addendum allows a driver to receive “lead generation and related services” through Uber’s app. The Addendum also outlines driver requirements (such as maintaining a valid driver’s license), insurance requirements, dispute resolution and the “Driver’s Relationship with Uber,” in which Uber uses clear language to attempt to establish the parameters of the Driver’s working relationship with Uber.
For UberBLACK, Uber holds a certificate of public convenience from, and is licensed by, the Philadelphia Parking Authority (PPA) to operate a limousine company. Transportation companies and individual transportation providers who provide ‘Black Car’ services in Philadelphia are required to hold a PPA certificate of public convenience or associate with an entity that holds such a certificate. Approximately 75% of UberBLACK drivers use Uber’s automobile insurance.
A driver can choose to accept any trip offered by the app, but if the driver does not accept the trip within fifteen seconds of the trip request, it is deemed rejected by the driver. The driver app will automatically route the trip request to the next closest driver, and if no other driver accepts the trip, the trip request goes unfulfilled, as Uber cannot require any driver to accept a trip. UberBLACK drivers are free to reject trips for any reason, aside from unlawful discrimination. However, if a driver ignores three trip requests in a row, the Uber Driver App will automatically move the driver from online to offline.
Uber sets the financial terms of all UberBLACK fares. Uber also has regulations under which it logs off each driver for a period of six hours if the driver reaches Uber’s twelve-hour driving limit. Finally, drivers do not know where a rider’s final destination is prior to accepting the ride.
Definition of ’employee’
The minimum wage and overtime wage provisions at issue all require that the plaintiffs prove that they are “employees.” The Third Circuit utilized the test outlined in the venerable precedent Donovan v. DialAmerica Marketing, Inc. [757 F.2d 1376 (3d Cir. 1985)], to determine employee status under the FLSA. This seminal case acknowledges that, when Congress promulgated the FLSA, it intended it to have the “broadest definition of ‘employee.’ ”
In DialAmerica, the Third Circuit used six factors—actually adopting the Ninth Circuit’s test—to determine whether a worker is an employee under the FLSA:
- the degree of the alleged employer’s right to control the manner in which the work is to be performed;
- the alleged employee’s opportunity for profit or loss depending upon his managerial skill;
- the alleged employee’s investment in equipment or materials required for his task, and/or the employment of helpers;
- whether the service rendered required a special skill;
- the degree of permanence of the working relationship; and
- whether the service rendered is an integral part of the alleged employer’s business.
Thus, “courts should examine the circumstances of the whole activity,” determining whether, “as a matter of economic reality, the individuals are dependent upon the business to which they render service.” The burden lies with the plaintiffs to prove that they are employees.
It’s fundamental that for summary judgment to be appropriate, there must exist no genuine disputes as to any material facts on the record, here entitling Uber to judgment as a matter of law. In this case, the ultimate question of law was whether the plaintiffs were employees or independent contractors. The Third Circuit panel held that disputed facts include (1) whether the plaintiffs were operating within Uber’s system and under Uber’s rules, and (2) whether the plaintiffs or their corporations contracted directly with Uber. Although the District Court stated that its decision derived from undisputed facts, the Third Circuit found that the disputes presented by the parties go to the core of the DialAmerica factors and present a genuine dispute of material facts. Accordingly, the Third Circuit remanded to the District Court, saying summary judgment was inappropriate.
To illustrate that there are genuine disputes remaining, the appellate judges focused on the first DialAmerica factor: “the degree of the alleged employer’s right to control the manner in which the work is to be performed.” While not dispositive, this factor is highly relevant to the FLSA analysis. If the six-factor test is analogized to a bundle of sticks, right-to-control may be seen as the biggest stick in the bundle. Additionally, actual control of the manner of work is not essential; rather, it’s the right to control that is determinative.
Control over drivers?
The parties contested whether Uber exercised control over drivers. While Uber categorized drivers as using the Uber App to “connect with riders using the UberBLACK product,” which may imply that drivers independently contract with riders through the platform, the plaintiffs contended that this wasn’t so.
Uber also contended that drivers could drive for other services while driving for Uber, however the plaintiffs contended that while “online” for Uber, they cannot also accept rides through other platforms. The plaintiffs referenced Uber’s Driver Deactivation Policy that established that “soliciting payment of fares outside the Uber system leads to deactivation” and “activities conducted outside of Uber’s system—like anonymous pickups—are prohibited.”
The Third Circuit found that these factual disputes are all relevant to whether Uber retains the right to control the plaintiffs’ work. Further, these and other disputed facts regarding control demonstrated why this case was not ripe for summary judgment.
All companies with business models like those of Uber, Lyft and, yes, Instacart should brace for more of these legal challenges by workers who have been braving the pandemic.