Hey everyone, I hope you’re doing great. I took a few weeks off from blogging to move but I’m back to write about Uber drivers and how they’re classified as independent contractors. I want to find out whether drivers really are bona fide independent contractors. So let’s critically analyze the employment relationship of these drivers to see if they’re correctly classified. But first, here are some quick facts about Uber;
- Uber is huge. The company operates in 58 countries and 450 cities. 40 million people used Uber just last month.
- There were 327,000 Uber drivers as of October, 2015 however only 4 percent of the staff will be with the company one year after they began.
- The company grossed $6.5 billion, $2.1 billion and $1.1 billion in sales in 2016, 2015 and 2014 respectively.
- Uber CEO Travis Kalanick was worth approximately $6.3 billion approximately in 2014. Kalanick joined the Trump administration as an economic advisor in December 2016. After Mr. Trump issued an executive order which banned international travel from 7 Muslim majority countries, the New York Taxi Workers Alliance staged a strike at John F. Kennedy International Airport. Uber then tweeted it would increase surge prices at JFK. Kalanick was criticized for this move and stepped down from the administration in February 2017. He later resigned as CEO in June 2017 after “a slew of executive departures and sexual harassment allegations” had “raised concerns about the company’s ability to recruit female talent.”
Here are some quick facts about Uber drivers;
- A full-time driver’s salary in the U.S. could be as high as $90,000 per year according to Uber. But this doesn’t include expenses like the lease, fuel, maintenance, insurance, tolls or other miscellaneous driver fees. That $90,000 annual salary doesn’t sound like much given these expenses and the average wage could be as low as $3 per hour in other countries. Also, drivers aren’t paid in between fairs.
- Uber drivers earn approximately $25 to $35 per hour on average in large cities like New York and Los Angeles. But in smaller cities, drivers typically earn between $8 and $15 per hour or $30,000 per year salary.
- Uber drivers must be at least 21 years of age and have 3 years driving experience. Drivers must have insurance, registration, licenses, a social security number, have a clean driving record and pass a background check. Drivers must own or lease a 4 door vehicle which seats 4 or more passengers, excluding the driver.
- Vehicles may not be older than 10 years, they can’t be marked, taxis or salvaged vehicles. Vehicles must pass an inspection.
- Uber drivers may not have any DUI or drug-related offenses, incidents of driving without insurance or license, fatal accidents, history of reckless driving or a criminal history. If a someone doesn’t own or lease a vehicle which is less then 10 years old, the driver may rent or finance an automobile from Uber, making them both a driver and consumer.
Employment Relationship Test
The U.S. Department of Labor defines the employment relationship between workers and their employers. To employ someone is to “suffer or permit” them “to work” on the behalf of an employer. This implies the worker expects to be paid for their hours worked. Furthermore, workers are economically dependent on their employers while independent contractors aren’t.
There are six parts to the independent contractor test. Let’s critically analyze the relationship between Uber and their drivers to see if they are in fact classified correctly as independent contractors.
First, the extent to which the work performed is an integral part of the employer’s business. Uber claims it is a technology company, however, the purpose of a technology company is to innovate, to make technology better, faster and cheaper. Technology firms usually improve upon existing technology to save on labor and consumer costs. But it seems like Uber receives the vast majority of its revenue from drivers who provide rides to riders, not from making technology more efficient. Providing riders with rides is an integral part of Uber’s business: this is how the firm brings in revenue.
Second, whether the worker’s managerial skills affect his or her opportunity for profit and loss. For someone to be a bona fide independent contractor, they must be able to hire and fire their own employees, set their rates of pay, promote, demote, evaluate employee performance and manage a budget. If an Uber driver was a bona fide independent contractor, they should be able to hire drivers to drive for them.
Third, the relative investments in facilities and equipment by the worker and the employer. This point somewhat applies given the driver must finance, lease or own their vehicle. However, Uber sets the conditions for the quality of the vehicle and inspects the vehicle. Also, if the driver wrecks their vehicle in an accident, the driver is liable for the repairs.
Fourth, the worker’s skill and initiative. Drivers must, of course, obtain a driver’s license, but just because someone has a driver’s license doesn’t mean they exercise independent business judgment. Drivers don’t compete with other drivers: they don’t own their own businesses, can’t negotiate their rates of pay, nor can they hire and fire employees. Drivers do whatever Uber tells them to do, they have little discretion in how work is assigned to them.
Fifth, the permanency of the worker’s relationship with the employer. Drivers drive until they quit. Of course, they could be deactivated if they don’t drive at least once per month. Once a driver’s account is deactivated because of low ratings or inactive period, Uber will have the driver take a class to be reactivated for $100. But being deactivated sounds similar to being fired and if someone was fired, they must have been hired in the first place. My point is, only employees may be hired and fired. An independent contractors’ contract will have an expiration date in which all work must be completed. And if the work isn’t completed, their bond is pulled. So without a contract and expiration date, the employment relationship is permanent until the driver resigns or is terminated.
Finally, the nature and degree of control by the employer. Uber controls prices for consumers and wages for drivers. They also get 20 percent of the fare. Prices increase or surge during rush hours and weekends when consumer demand is high. Prices fall during the middle of the day, giving consumers an opportunity to take advantage of affordable ride shares. But driver’s, however, don’t get to set their rate of pay nor do they control the ride information, rates or prices.
It seems like the only factor drivers actually get to control for is their schedule. However, this is a moot point because the employment relationship essentially says, “I’ll come work and work for you. You give me some money, and for the duration that I’m working for you, I am under your authority. What I do with my time, where I stand, where I go, who I talk to, how many bathroom breaks I take, where I look, how fast I work all this is not at my discretion. It’s at the discretion of you, the employer.”
“That waking time, for most people in the world, is most of their waking day. That working time comprises anywhere between two-thirds to three-fourths of all the time that they’re awake — which means, effectively, that three-fourths of their active life is spent giving up their autonomy to somebody whose interests are lined up against their own interests.”
“This lack of autonomy inside the workplace is often compounded by being under their employer’s control outside the workplace.”
Based on this critical analysis, it’s unlikely Uber drivers are bona fide independent contractors. They’re employees. The California Labor Commission agreed with this determination when it decided drivers were employees in June 2015. The same decision was made in the U.K. in October 2016.
This begs the question, why would an employer classify an employee as an independent contractor in the first place? There are several reasons an employer might do this;
- The income tax burden is placed on the independent contractor. They must save part of their income throughout the year to be able to pay taxes in April, the following year.
- Independent contractors are exempt from the minimum wage and overtime rights under the Fair Labor Standards Act which makes them vulnerable to wage theft.
- Furthermore, employees misclassified as independent contractors wouldn’t be covered by laws enforced by the Equal Employment Opportunity Commission, adding another layer of vulnerability. “The EEOC protects the workplace civil rights of employees, including prohibitions of employment discrimination based on factors such as age, race, gender, or disability.”
- The state is deprived of revenue to be paid in unemployment insurance and Social Security.
- Employers weaken collective bargaining power when workers are misclassified as independent contractors because they aren’t covered by the National Labor Relations Act.
- Independent contractors usually aren’t allowed to enroll in employer-paid health care and pension plans which saves employers money.
The crux of the matter isn’t so much Uber misclassifying employees as independent contractors but how common it is for firms, in general, to misclassify employees this way.
“In 2000, the Department of Labor commissioned a study that estimated that nearly a third of all employers misclassified some employees as contractors; a 2005 study found that more than 10 percent of workers in the private sector had been wrongly designated as contractors. In 1993, 7 percent of workers were independent contractors or temps; economists estimate this number will grow to 20 percent by 2020.”
Case Study: FedEx
When FedEx Ground and FedEx Home misclassified drivers as independent contractors, unemployment insurance, Social Security, employee health care and pension plans went unpaid and the company saved some 40 percent in labor costs.
But the Ninth Circuit Court of Appeals ruled FedEx misclassified 2,300 workers as independent contractors in California and Oregon in August 2014. The Kansas Supreme Court ruled FedEx drivers were employees, not independent contractors in October 2014. FedEx was caught for their wrongdoings, they eventually settled the lawsuit in California for $228 million in June 2015. Uber drivers can find more information here.
Which employees are most likely to be misclassified as independent contractors?
Workers in the custodial, home health care and secretarial services are most likely to be misclassified as independent contractors. And women and immigrants are overrepresented in these fields: at least 1/3 or some 3 million of the more than 10 million independent contractors employed in these low wage jobs would benefit if they were reclassified as regular employees.
Furthermore, drivers have mixed feelings as to whether they are employees or independent contractors. NPR conducted an informal survey and contacted drivers via email lists and social media. 491, or a little more than half of the drivers responded they felt like they were their own boss while 436 said they didn’t.
What Should We Do About Misclassification?
Consumers and drivers are active agents in the rideshare economy. And they have the power to bring about great change in two different ways. The first option would be to publicly demand that Uber properly classify their drivers as employees by a certain date. If that date passes and firm failed to meet consumer and driver demands, the next best option would be to stop accepting rides from Uber and for drivers to drive for someone else.
Uber drivers are misclassified as independent contractors. They should be classified as employees. And the sooner consumers and drivers demand Uber reclassify these independent contractors as employees, the better off we’ll all be.