Vedder Thinking | Articles California Corner: There's a Classification for That—Recent Cases Challenge Whether Application-Based Service Platforms Misclassify Independent Contractors
As the number of services offered to consumers through applications ("app" or "apps") on their tablets and smartphones continue to expand, the companies that are profiting from them are facing a series of lawsuits that may redefine how they (and others) do business. These cases are not the first instance—and will undoubtedly not be the last—where wage and hour laws lag behind technological advances. Mobile apps such as Uber, Lyft and Sidecar have taken a number of markets by storm, revolutionizing the way consumers request, track and pay for taxi and "black car" rides. TaskRabbit, meanwhile, is an app attempting to redefine the way consumers complete their "to do" lists by enabling them to arrange for someone else (the "Tasker") to perform a number of different tasks such as cleaning, shopping or making deliveries. With an ever-growing number of people earning a living by serving as someone else's "private driver" or errand runner, the question being asked is whether these companies should be classified as employees or independent contractors. The answer may well determine whether certain businesses survive and/or prosper.
Two cases currently pending in the U.S. District Court for the Northern District of California may shed some light on the subject. In Douglas et al. v. Uber Technologies, Inc., Case No. 3:13-cv-03826-EMC, a number of drivers are claiming that Uber misclassified them as independent contractors. They are seeking to proceed with a class action on behalf of a significant number of Uber drivers. Similarly, in Cotter et al. v. Lyft, Inc., Case No. 3:13-cv-04065-VC, the plaintiffs are attempting to assert class-wide claims that Lyft violated the applicable wage-and-hour laws by misclassifying its drivers as independent contractors. In both cases, the driver-contractors contend that they are, in fact, employees. Motions for summary judgment have been filed in both cases, but the courts have yet to rule.
What does this mean for California employers? Unless and until the courts (or legislature) decide whether individuals providing a service "brokered" by an app-based platform, the companies offering such services must be mindful of the classifications they settle on and the associated risks they face. The rulings anticipated in cases like Uber and Lyft will provide employers with insight as to how the courts may apply long-standing legal principles in a rapidly evolving online marketplace. In the meantime, employers should remember that under California law, "control" is one of the most important factors dictating whether an individual is an employee or an independent contractor. California courts will consider a number of other factors when evaluating independent contractor status. The California Industrial Welfare Commission (IWC), meanwhile, issues industry and occupational wage orders that define terms such as "employ," "employee" and "employer."
While the California Supreme Court has not specifically addressed the cases described above, it decided, in January 2015, to review an appellate court's decision in Dynamex Operations West, Inc. v. Superior Court, a wage-and-hour class action alleging misclassification of a nationwide class of drivers for a courier and delivery service. The appellate court certified a class based on the "employee-centric" IWC definition of employee, rather than requiring the plaintiff to satisfy the more employer-friendly common-law definitions. Depending on the approach adopted by the Supreme Court here, employers may soon face an explosion of misclassification claims. As the courts rule on these independent contractor decisions, we will continue to provide updates on the status of the California landscape.
If you have any questions about this, or any other California matter, please contact Brendan G. Dolan at +1 (415) 749 9530, Heather M. Sager at +1 (415) 749 9510, Lucky Meinz at +1 (415) 749 9532, Brittany A. Sachs at +1 (415) 749 9525, or Zachary Scott at +1 (415) 749 9535.
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