Uber, Lyft 'misclassifying' workers as independent contractors, lawsuit claims

Now two class-action lawsuits in the U.S. are looking to upend this new model, charging that ride-sharing giants Uber and Lyft are wrongly classifying their workforce as independent contractors in orderto pocket more profits rather than cover worker benefits.

• CaliforniaUberdriver deemed an employee
• New forms of regulation urged for the sharing economy
• Sharing economy income is taxable

Independent contractors must also pay out-of-pocket for business expenses (which they are meant eventually to claim on tax returns). Ride-share drivers, for example,can be responsible for gas, insurance, maintenance and parking costs.

What's at issue in these cases is the degree to which Uber and Lyft set the work standards and level of services for their independent contractors, in effect treating them as they would an employee.

Expense reimbursement demanded

"We've seen a lot of companies in a lot of different industries try and get away with this," says Shannon Liss-Riordan, a lawyer whofought for employee status fordelivery drivers, cleaners and exotic dancers."We're just seeing a new wave of companies that are pushing the envelope."

Liss-Riordanlaunched two class-action lawsuits on behalf ofUber and Lyft drivers in California, claiming the ride-sharing servicesmisclassified them and demanding a refund for all their work-related expenses.

When you're trying to start a company quickly, it makes a lot of sense to do that- MarcelaSapone, Hello Alfred CEO and co-founder

In Canada, as well as in the U.S., one of the main factors separating an employee from an independent contractoris how much a company controls the workers' services, employment lawyers say.

Uber and Lyftexercise a high-degree of control, says Liss-Riordan. They standardizeservices by settingrates, and issuing guidelines on how driversbehave and maintain their vehicles.

Other factors, employment lawyers say, caninclude whether these independent workers conduct services that are a core part of the hiring company's business, and whether they intended to set themselves up as independent contractors in the first place or more in a direct, employee-like relationship with a particular company. Other factors can include how long a person has worked for a particular company like Uber and how dependent that individual is on that source of income.

TheU.S. Department of Labour released guidelineslast week, clarifyingthat "most workers are employees" under the Fair LabourStandards Act. The department saidan increased number of workplaces are misclassifyingtheir employees.

Liss-Riordanbelieves both companies push past the limits of what's acceptable for independent contractors,and anticipates judges will certify both her filings as class-action suits later this year for a trial in 2016.

Lyft did not respondto request for comment on the lawsuit;Jessica Santillo, an Uber spokeswoman,reiterated the company's position thatdrivers enjoy flexibility and control over their own livelihood.

No Canadian legal precedent

If judges rule in favour of the Californiadrivers,UberandLyftwill not only have to reimburse their past expenses, but also change how they operate at least in that state.

They may also have to deal with such workplace niceties as unemployment insurance, worker compensation and the right tounionize, Liss-Riordan says.

That kind of ruling may drive interest for similar action in Canada if Uber drivers felt they would benefit more from employee protections than independent contractor flexibility,saysDanielLublin, a partner atemployment law firmWhitten&Lublinin Toronto and co-author ofHR Managers Guideto Independent Contractors in the Workplace.

Still, he doubts Uber drivers would race to get such a ruling, and with little legal precedent in Canada"it's not clear" what decision could be reached here.

While Canadian law is "generally pretty employee favourable," Lublin says, it's unlikely to categorize all Uber drivers as employees, especially those who have other jobs. But, he says, long-time Uber drivers who don't have another source of income would have a strong case.

In Canada, he says, Uber drivers could also claim to be part of a third, hybrid employment category, called dependent contractors, who are entitled to severance pay if they're fired.

Lublin anticipates some Uber drivers could make successful claims for severance pay if they find themselves out of work if the company is forced to adhere to strict regulations.

But not everyone interprets Canada's existing legal framework that way.

"These individual drivers are clearly in business for themselves," says Mark Fletcher, an employment lawyer and partner at Toronto-basedGrosman, Grosman & Gale LLP.

Uber drivers have a high degree of control over their work, supply their own equipment and enter the arrangement wanting to be independent contractors, he says.

"That's the plan: we're in business for ourselves, and we want to have the freedom and the ability to drive when we want. We're not in business for Uber."

As he sees it, Canadian law would determine these workers are independent contractors.

Uber, Lyft not alone

The target of these lawsuits, Uber and Lyft, are among severalthat offer on-demand services using independent contractors though,most operate exclusively in the U.S.

TaskRabbitoutsources chores customers don't want to do to independent contractors. Through Postmates and DoorDash, independent contractors deliver restaurant meals.

These companies have a choice to "read the letter of the law versus the spirit of the law," says MarcelaSapone, the CEO and co-founder of Hello Alfred, a personal butler service that operates in Boston and New York and is expanding to four other locations soon.

Many seem to determine their workers are in between the two classifications, she says, and opt to call them independent contractors because that offers savings and flexibility.

"When you're trying to start a company quickly, it makes a lot of sense to do that," she says.

When her company launched in September 2014, all her so-called Alfredswere independent contractors. However, she knew she wanted to switch them toemployees so she could exercise more control byproviding ongoing training and equipment, and determining their work hours.By November 2014, allAlfredsbecame employees.

The switch added an extra 20 to 30 per cent to the company's overall cost structure, says Sapone. But, she's happy with her choice.

"We are likely to avoid any... fees or penalties or lawsuits," she says.

While Uber and other companies have managed to avoid legal recourse for a long time,lawyer Liss-Riordan believes many companies are nowquestioning their employee classification practices.

In early June, the California Labour Commission ruled againstUberin a case that suggests the way the lawis interpreted may be changing.

The commission found thatUberdriver Barbara AnnBerwickshould be considered an employee andreimbursed her more than $4,000US in outstanding expenses and interest. (In August 2012, the same commission ruled in favour ofUberin a similar case.)

Uber is appealing the Berwick ruling and some, like Fletcher, call this "an outlier decision." But, Liss-Riordanbelieves it signals a change.

"They're realizing ... the legal hot water it's getting these companies into," she says.