Labor & Employment Law Daily New York high court holds Postmates courier is ‘employee’ for purposes of unemployment compensation
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Monday, March 30, 2020

New York high court holds Postmates courier is ‘employee’ for purposes of unemployment compensation

By Georgia D. Koutouzos, J.D.

The app-based delivery service exercised sufficient control over its couriers to establish an employer-employee relationship.

In a split decision that marks the end of a series of reversals by the state’s administrative decision makers and the appeals court, New York’s highest court ruled that an individual who had been prohibited from continuing work as a courier for Postmates, Inc., an e-company that uses drivers to pick up and deliver goods, was an “employee” entitled to receive unemployment benefits. The high court’s majority found that the company exercised more than “incidental control” over its couriers and dominates the significant aspects of its couriers’ work. One judge concurred in that conclusion but opined that the common-law test for employer control should be replaced by Restatement of Employment Law’s test for determining employee status, while two dissenters maintained that the current, common-law test is unsuitable for characterizing work in the ever-evolving gig economy (In the matter of Vega, March 26, 2020, DiFiore, J.).

Nature of the job. An individual worked as a courier for Postmates, Inc., a delivery business that uses a website and smartphone application to dispatch couriers to pick-up and deliver goods from local restaurants and stores to customers in cities across the United States. Postmates solicits and hires its couriers, who undergo background checks before being approved to work by the company. After they are approved, the couriers decide when to log into the application and which delivery jobs to accept. Once a courier accepts a delivery job made available through the application, he or she receives additional information about the job from Postmates, including the destination for the delivery. Upon completing the delivery, couriers receive 80 percent of the delivery fees charged to customers and are paid even when the fees are not collected from customers by Postmates. Both couriers’ pay and the delivery fee are nonnegotiable.

Unemployment benefits claim. The individual made deliveries for approximately one week and, after he was blocked from using the Postmates application based on negative reviews from customers alleging fraudulent activity, he filed a claim for unemployment benefits. The New York Department of Labor initially determined that he was an employee of the company and required that Postmates pay unemployment insurance contributions on his earnings as well as on the earnings of all other individuals similarly employed as couriers. Postmates disputed the determination and an Administrative Law Judge ruled in the company’s favor, concluding that the claimant was an independent contractor on the basis that Postmates had not exercised sufficient supervision, direction, and control over him to establish an employer-employee relationship.

Subsequent appeals. The Commissioner of Labor appealed the ALJ’s decision to the Unemployment Insurance Appeal Board, which sustained the Department’s initial determination that the claimant was an employee, and that he and any other on-demand Postmates couriers were employees because the company exercised, or reserved the right to exercise, control over their services. Postmates again appealed and the New York Supreme Court’s Appellate Division reversed the Board’s decision, concluding that “[w]hile proof was submitted with respect to Postmates’ incidental control over the couriers,” the proof “d[id] not constitute substantial evidence of an employer-employee relationship to the extent that it fail[ed] to provide sufficient indicia of Postmates’ control over the means by which these couriers perform their work.” The Commissioner appealed that decision to New York’s highest court.

Degree of control over workers. The high court’s majority found that there was substantial evidence in the record to support the Board’s determination that Postmates exercised sufficient control over its couriers to render them employees rather than independent contractors operating their own businesses. The company is operated through a digital platform accessed via smart phone app that connects customers to couriers, without whom the company could not operate. While the couriers decide when to log into the app and accept delivery jobs, Postmates controls the assignment of deliveries by determining which couriers have access to possible delivery jobs. The company informs couriers where requested goods are to be delivered only after a courier has accepted the assignment, and customers cannot request that the job be performed by a particular worker. If a courier becomes unavailable after accepting a job, then Postmates, and not the courier, finds a replacement.

Compensation scheme. In addition, although Postmates does not dictate the exact routes that couriers must take between the pick-up and delivery locations, it tracks courier location during deliveries in real time via the app, providing customers an estimated time of arrival for their deliveries. The couriers’ compensation—which the company unilaterally fixes and the couriers have no ability to negotiate—is paid to the couriers by Postmates. The company, and not its couriers, bears the loss when customers do not pay. Because the total fee charged by Postmates is based solely on the distance of the delivery and couriers are not given that information in advance, they are unable to determine their share until after accepting a job. Further, Postmates unilaterally sets the delivery fees, for which it bills the customers directly through the app. Couriers receive a company sponsored “PEX” card that they may use to purchase the customers’ requested items, when necessary. Postmates handles all customer complaints and, in some circumstances, retains liability to the customer for incorrect or damaged deliveries.

Employer domination. In that regard, the court found that Postmates exercises more than “incidental control” over its couriers, who are low-paid workers performing unskilled labor and possessing limited discretion over how to do their jobs. The fact that the couriers retain some independence to choose their work schedules and delivery routes does not mean that they have actual control over their work or the service that Postmates provides to its customers. Rather, there was substantial evidence for the Board’s conclusion that the company dominates the significant aspects of its couriers’ work by dictating to which customers they can deliver and where to deliver the requested items, effectively limiting the time frame for delivery and controlling all aspects of pricing and payment.

Postmates has complete control over the means by which it obtains customers, how the customer is connected to the delivery person, and whether and how its couriers are compensated. Given the support in the record for the Board’s conclusion that the company exercised more than incidental control over its couriers, the Appellate Division’s decision was reversed, and the Board’s decision was reinstated.

Concurrence: Restatement test is better. Noting that the majority correctly described the court’s multi-factor test for determining whether a worker is an employee, Judge Jenny River a said that while that test is well-suited to most cases, it has its limits and may prove difficult to apply to electronically mediated work arrangements. Thus, she would adopt as the better approach the Restatement of Employment Law’s test for determining employee status, which alternatively considers the worker’s entrepreneurial control over their services and the extent to which the employer “effectively prevents” such worker control.

The fact that an employer profits from unskilled labor without having to supervise a worker in the traditional sense does not render the worker an independent contractor merely by dearth of oversight, Judge River a said, adding that an illusory opportunity to be your own business person is insufficient to establish independent contractor status where the employer controls significant aspects of the work that meaningfully impact the employer-employee relationship, and by so doing, “effectively prevents the individual from rendering those services as an independent business person.” The conditions establishing an employment relationship set forth in the Restatement of Employment Law, drawing in part from the multifactor test of the Restatement (Third) of Agency, should be applied to unemployment insurance cases, she concluded, nevertheless concurring in the result reached by the majority.

Dissent: Inconsistent case precedent fails to keep up with the times. Writing for himself and one other, Judge Rowan Wilson opined that the majority’s opinion suffered from two independent defects, the first of which was a failure to examine the record to determine whether the findings of the Commissioner of Labor were supported by substantial evidence and the second of which was a failure to recognize that the realities of the contemporary working world have outpaced the court’s jurisprudence. The multitude of factors identified in relevant case law as pertinent to determining whether a claimant is an employee or independent contractor, coupled with the court’s deferential standard of review, has left only two undesirable paths open: Either the court must adhere to the case law and standard of review, leaving all agency decisions unreviewable, or it must make haphazard reversals without explanation, based on an ad hoc test left unarticulated because it defies explanation.

Lack of clarity. The Commissioner of Labor, the Unemployment Insurance Appeal Board and high court majority concluded that the courier’s slapdash week of activity made him Postmates’ employee, while the ALJ and Appellate Division concluded that it did not. Querying what accounted for such disagreement, Judge Wilson asserted that it was the failure of the court’s precedent to keep up with the times. Putting aside the clear lack of record support for a multitude of the factors relied on by the Department of Labor to determine the degree of control exercised by the employer, Judge Wilson said that the majority’s conceptual error in resolving the case at bar stemmed from a lack of decisional clarity about what factors matter when and why. Absent a more defined legal standard, it is unclear how much control the employer may have over an independent contractor before that contractor becomes an “employee,” or, for that matter, what makes control “incidental” as compared to non-incidental, he observed.

Inconsistent results. Because “control” standing alone is relatively unhelpful, the high court has responded by creating a multifactor analysis where no one factor is determinative and where no enumerated list of factors can apply to every situation faced by a worker. This approach has netted a hash of factors that may be held more or less probative to the “control” determination depending on who is performing the analysis, he said, adding that in the briefing on the case, the parties pointed to more than 20 factors, each supported by one or more precedents, none of which overruled the other and all of which were claimed to bear on the control analysis. That inconsistent, summary precedent made it nearly impossible to arrive at a decision that harmonizes with what has come before, he maintained.

Legislative clarification needed. The common-law test for an individual’s status as an employee developed in a vastly different time, he observed, arguing that the challenge is how to apply the court’s inconsistent common-law test in a world where work looks much different than it did when that test was developed. Although it is well within the purview of the courts to alter a common-law test, such an approach is best done incrementally, he said, adding that complete overhaul of the common-law employment test to adapt it to the present and future economy was not a task to which courts are well suited. Whether, to what degree, and on what basis we wish to provide unemployment benefits to Postmates couriers generally, or to other workers in the gig economy, is a policy question best left to the legislature, he concluded, stating that the courier in the instant case was not an “employee.”

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