Is the New Postmates Decision in New York a Blockbuster Case on Independent Contractor Misclassification or Not?

The New York Court of Appeals today issued a decision involving the independent contractor status of a Postmates courier.  The Court’s opinion supporting employee status may have very little impact from a judicial standpoint in New York and, indeed, may provide useful insights for savvy companies seeking to elevate their level of independent contractor compliance.  But it may also send shockwaves through the gig economy in New York and elsewhere for those who read more into the decision than is warranted.

The Majority Opinion in Postmates

The Court of Appeals majority did not find that the courier was an employee; rather, it ruled only that there was “substantial evidence in the record to support the [Appeal] Board’s determination.”

The history of the case is a classic example of administrative and judicial ping-pong.  The Court of Appeals majority reversed the Appellate Division (Third Department), which had reversed a decision by the New York Unemployment Insurance Appeal Board, which had reversed a decision by an Administrative Law Judge, who had reversed a 2015 decision by the Labor Commissioner finding that a courier was misclassified as an independent contractor instead of an employee for unemployment insurance purposes.

A constant refrain by New York appellate courts reviewing administrative decisions by the Unemployment Appeal Board is that even if they may have reached a different decision on the merits based on all of the evidence introduced at the hearing before an ALJ, their limited role is not to decide the merits.  Rather, the role of appellate courts is simply to determine if there was enough evidence in the record to support the Appeal Board’s decision, even if the countervailing evidence was greater. As a result, appellate courts in unemployment cases typically focus on the factors that might have supported the Appeal Board’s decision – and that is what the Court of Appeals did here in its decision.

What were those factors that the majority found to support the Appeal Board’s decision?  The Court pointed to three key factors:

  • The workers were “low-paid” and unskilled.
  • The couriers had limited discretion over how to do their jobs.
  • The “nature of the work” (making deliveries) resulted in Postmates “dominat[ing] significant aspects of its couriers’ work” by dictating to which customers the couriers can deliver and where to deliver the requested items, “effectively limiting the time frame for delivery and controlling all aspects of pricing and payment.”

In 2016, the Court of Appeals issued a widely heralded decision in a case called Yoga Vida, concluding that the Appeal Board’s decision that yoga instructors were employees and not independent contractors was not supported by sufficient evidence.  The majority opinion in Postmates distinguished the instructors in Yoga Vida from the couriers here, pointing out that:  the yoga instructor in that case provided a service that is, “in some respects, unique to that instructor and his or her personal characteristics,” is free to create his or her own customer following and invite students to attend their classes at competing studios, and was afforded the opportunity to chose the manner in which Yoga Vida would calculate the instructor’s pay (either hourly or on a percentage basis). The majority summed up this comparison by noting the obvious: “yoga instructors are not couriers.”

The Dissenting Opinion

Judge Rowan Wilson filed a 24-page dissenting opinion, joined by Judge Michael Garcia. He criticized the majority for not undertaking a close review of the facts that were relied upon by the Commissioner of Labor to support the initial determination that the courier was an employee. The dissent also criticized the majority’s reliance on using the “nature of the work” as a new factor in determining independent contractor status.

Finally, Judge Wilson observed that the Appeal Board and Court majority had no legal basis on which to conclude that the decision by the Appeal Board applied not only to the claimant, Mr. Vega, but also to all other similarly situated couriers.  As the dissent pointed out, the ALJ himself stated on the record that the hearing was only about Mr. Vega and would not apply to other couriers providing services to Postmates.  Judge Wilson concluded:  “Whether other Postmates couriers are employees is not before us. Mr. Vega’s case is, and [in the dissent’s opinion] he is not.”

Analysis and Takeaways

The New York Attorney General called the decision “a huge victory for thousands of gig workers across New York.”  She added: “The courts have solidified what we all have known for a while — delivery drivers are employees and are entitled to the same unemployment benefits other employees can obtain.”  The “victory,” though, has no application to any other gig workers in the state.  Nor is it determinative of the status of independent contractors engaged by other companies.  It is also limited to the issue of independent contractor status under the unemployment insurance law in New York and does not apply to any other laws in the state, such as workers’ compensation or wage and hour laws.  Moreover, as the majority of the Court acknowledged, its decision was not on the merits but rather on the issue of whether there was enough evidence on the record to support the Appeal Board’s conclusion.  

There are even arguments that can be made by Postmates, besides those pointed out by the dissent, that the decision should have no binding effect on other couriers that provide services to Postmates.

In addition, the majority opinion is by no means a victory for couriers like the claimant, Mr. Vega, who would not have been eligible for unemployment benefits in any event.  He only worked intermittently for a week when Postmates blocked his access to its app after he repeatedly failed to deliver all of the products ordered by customers.  Further, when couriers like Mr. Vega have their access to a company’s app suspended or terminated by a company like Postmates, the couriers can usually gain immediate work opportunities with other competing companies, thereby eliminating their eligibility for unemployment benefits.

It appears that the majority sought to convey its view that low-paid and unskilled workers are less compatible with independent contractor status under the New York unemployment insurance law than those who earn receive higher fees for their services or are retained because of a skill they possess.  Plainly, higher levels of skill and compensation have always been factors that are taken into consideration in cases alleging independent contractor misclassification; that is hardly an earth-shattering pronouncement by the Court’s majority.

Most companies that engage lesser skilled workers as independent contractors and compensate them commensurate with their skill level have sought to minimize the potential for independent contractor misclassification.  Many have used a process such as IC Diagnostics™, which enhances independent contractor compliance by restructuring, re-documenting, and/or re-implementing independent contractor relationships in a sustainable and customized manner consistent with existing business strategies. Companies like Postmates can also effectively utilize this type of process to minimize the future impact of an unfavorable decision by administrative agencies or the courts. 

Numerous companies will likely become alarmed that the highest court of a state has affirmed an administrative decision that a gig economy worker paid on a 1099 basis is eligible for unemployment benefits.  But a process such as IC Diagnostics™ can actually utilize the Postmates decision as a tool to enhance a company’s independent contractor compliance to a heightened level.

Written by Richard Reibstein

 

 

 

 

 

This entry was posted in IC Compliance. Bookmark the permalink.