On May 9, 2017, Governor Rick Scott of Florida signed the Transportation Network Companies Act (HB 221), which designates drivers for ride-sharing companies in the on-demand or gig economy as “independent contractors” as long as the “transportation network company” meets four criteria that are currently met by Uber, Lyft, and other similar companies. The new law essentially creates a safe-harbor for such ride-sharing companies from liability misclassification of employees as independent contractors under the labor and employment laws in Florida, including laws governing minimum wages, unemployment, workers’ compensation, and workplace discrimination. It does so by creating a new four-pronged test for IC status in this industry – a test that is not the least bit challenging for ride-sharing companies to meet.
While it has been suggested this new law insulates ride-sharing companies from legal claims alleging independent contractor misclassification, it actually has only limited impact on such claims. Why? Because this new Florida law does not preempt or eliminate the federal wage and hour laws and other U.S. labor and employment statutes, which are not affected by this new law. Indeed, the tests for IC status under those federal laws remain unchanged.
The new Florida law, which takes effect on July 1, 2017, covers an array of matters pertaining to ride-sharing companies besides the independent contractor rules. It includes a ban on local governments and airports imposing their own taxes, fees, or requirements on transportation network companies (TNCs); requiring insurance for TNCs and TNC drivers; mandating TNCs to implement zero-tolerance drug and alcohol use policies; requiring a TNC to conduct background searches of drivers; and requiring TNCs to establish nondiscrimination policies in regards to riders and enforcing such policies with drivers. Those characteristics of the new Florida law are beneficial to the public and the ride-sharing industry.
What does it take to establish IC status under the new law? Not much. The new Florida law provides in relevant part as follows:
“A TNC driver is an independent contractor and not an employee of the TNC if all of the following conditions are met: (a) The TNC does not unilaterally prescribe specific hours during which the TNC driver must be logged on to the TNC’s digital network. (b) The TNC does not prohibit the TNC driver from using digital networks from other TNCs. (c) The TNC does not restrict the TNC driver from engaging in any other occupation or business. (d) The TNC and TNC driver agree in writing that the TNC driver is an independent contractor with respect to the TNC.”
It is commonly understood that all four of those conditions are met by most if not all ride-sharing companies operating in Florida or will be met by July 1, 2017. Thus, while existing claims under the state’s labor and employment laws will not likely be extinguished as of July 1, 2017, the new law will bar such claims on and after that date by drivers for ride-sharing companies in Florida.
But such companies will continue to be covered by federal laws including the Fair Labor Standards Act, which governs minimum wages and overtime. That federal law has been one of the statutes on which many class action lawsuits against Uber and other ride-sharing companies have been brought. Ride-sharing companies operating in Florida will, however, be free from claims by drivers for state unemployment and workers’ compensation benefits; there are no federal counterparts for those laws.
What does that mean for ride-sharing companies operating in Florida with regard to IC misclassification claims? Again, not much. As we reported in our blog post of March 5, 2017, Uber has already been sued in a lawsuit brought under the Fair Labor Standards Act seeking a national collective action for allegedly misclassifying drivers as ICs. However, in response to Uber’s renewed motion to compel arbitration pursuant to the agreement to arbitrate that the plaintiff driver had signed, a federal magistrate judge issued a Report and Recommendation granting Uber’s motion. Lamour v. Uber Technologies, Inc., No. 16-Civ-21449 (S.D. Fla. Mar. 1, 2017). While the magistrate judge’s decision is not final, it is likely to be adopted by the district court judge. Unless overruled on appeal, federal wage and hour claims against Uber in Florida will not be subject to a class or collective action but rather to individual arbitrations.
All on-demand companies, including those in the ride-sharing industry, who rely upon independent contractors would be wise to take steps to minimize the likelihood that they will be targets of future claims for IC misclassification – whether brought in court under applicable federal or state wage and hour laws or by state or federal workforce regulators. As detailed in our White Paper, companies can minimize IC misclassification exposure by structuring, documenting, and implementing their IC relationships in a manner than enhances compliance with applicable legal tests for IC status.
One way to accomplish this is through the use of IC Diagnostics™. While this proprietary process cannot ensure that all businesses using ICs will be able to attain a higher level of compliance, an overwhelming number of companies based on a 1099 model or utilizing a large number of 1099ers can maximize their likelihood of avoiding legal challenges to their independent contractor relationships, and do so in a customized and sustainable manner.
While it is ideal for businesses to maximize IC compliance before they are targeted in an IC misclassification audit or administrative or court proceedings, the fundamentals of IC Diagnostics™ can also be valuable in defending new and existing legal challenges to a company’s IC classifications.
Written by Richard Reibstein.