New Uber Ruling Reveals Another Costly IC Misclassification Exposure for On-Demand Companies

Gig economy companies based on an independent contractor model beware.

On December 14, 2016, a federal court in Pennsylvania denied a motion to dismiss an “on-call” wage claim in a class action lawsuit filed against Uber by limousine drivers that claim they were not paid minimum wage and overtime for hours during which they were “logged into” the Uber App. This on-call wage claim is one that, so far, has rarely been made by on-demand workers challenging their classification as independent contractors.

Now that a federal court has issued a ruling allowing this type of claim to proceed, more plaintiffs’ class action lawyers are likely to assert this newfangled legal challenge in IC misclassification lawsuits against businesses using ICs to deliver on-demand services. As noted in my “Takeaway” below, gig economy companies that are paying attention to the IC misclassification landscape can and should take steps to enhance their IC compliance and thereby lower the risk that they will be subject to costly on-call wage and other types of legal claims. After all, a valid IC relationship should beat any and all IC misclassification challenges.

The Decision

The plaintiffs are UberBLACK drivers who are seeking minimum wage and overtime for all hours when they were logged into the Uber App. They claim they are “on call” while logged into the Uber App awaiting a ride request. Uber’s lawyers filed a motion to dismiss this claim, arguing that the drivers alleged no facts to suggest that they were “actually working” within the meaning of the law “just because they were logged in….” Razak v. Uber Technologies, No. 16-cv-573 (E.D. Pa. Dec. 14, 2016).

In his decision, Judge Michael Baylson noted that the U.S. Supreme Court ruled in 1944 that “under certain circumstances, on-call time is compensable.” Judge Baylson then set forth the prevailing law as to what must be alleged in order for “on call” time to be compensable as time worked. The key factor in this factual situation is whether the employee “finds his time on-call…so restricted that it interferes with personal pursuits.”

In denying Uber’s motion to dismiss, the court noted that the amended complaint alleged that drivers were required to wear business attire while working and those who refuse a fare are subject to suspension and termination. In the court’s mind, those allegations were sufficient to plead that the drivers were restricted in their personal pursuits. For that reason, the court ordered expedited discovery regarding the nature and extent of the interference with the drivers’ personal activities.

Analysis

As the court’s decision makes clear, it does not take much for a plaintiffs’ class action counsel to properly plead a viable on-call wage claim where there is some factual basis supporting interference with personal activities, especially where the workers provide on-demand services in person and allege there may be consequences if they don’t accept an engagement. Whether such gig workers can then prove the necessary facts to establish that such interference is sufficient to support a violation of federal or state law, will likely depend in large measure on the nature of the on-demand services provided.

In contrast to drivers and other gig workers who perform services in person, there are other on-demand workers, such as those providing services over the phone or on a laptop or tablet, whose personal activities would not likely be restricted to any meaningful degree if they choose to accept an engagement and perform services while logged onto an app.  Those workers can simply take a break from whatever else they may be doing at the time, even if they allege they had to accept the engagement.

This Uber case illustrates the importance of making the right motions at the right time. Motions to dismiss are oftentimes risky in litigation, as they require a court to make a determination assuming all allegations are factually correct, such as the allegation in this case that the workers classified by Uber as ICs are employees, that they are not paid for all hours they work, that they were restricted in some manner with regard to their personal activities while they were logged into the Uber App, and that they risked suspension or termination if they did not accept an engagement. The notoriety from this court decision denying Uber’s motion will also undoubtedly result in more plaintiffs’ class action lawyers bringing more on-call wage claims against on-demand businesses that use ICs to render services in person to their customers.

Takeaway

Even if workers classified as ICs bring an on-call wage claim and can show that their personal pursuits were significantly interfered with while “on call,” they will enjoy no success in the lawsuit if the business can establish that the workers have been properly classified as independent contractors.

While the number of companies today using ICs to provide services to customers is increasing, especially in the on-demand economy, too few have taken adequate steps to enhance compliance with applicable federal and state IC laws.  This leaves many of those businesses at risk for substantial IC misclassification liability.

How can such companies minimize the likelihood of an IC misclassification lawsuit or an audit or proceeding by a state or federal administrative agency? One way is through the use of IC Diagnostics™, a process that examines whether a group of workers not being treated as employees would pass the applicable tests for IC status under governing state and federal laws, and then offers a number of practical, alternative solutions to enhance compliance with those laws. One of those alternatives involves restructuring, re-documenting, and re-implementing a company’s relationship with its ICs to provide a customized, sustainable solution, including state-of-the-art independent contractor agreements. Such agreements can even include provisions that place the business in the best position possible to defend against on-call wage claims, such as those now facing Uber.

Written by Richard Reibstein.

 

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