Labor & Employment Law Daily Third Circuit overturns SJ ruling that UberBLACK limousine drivers were not employees
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Thursday, March 5, 2020

Third Circuit overturns SJ ruling that UberBLACK limousine drivers were not employees

By Ronald Miller, J.D.

“Courts should examine the circumstances of the whole activity,” the court emphasized, determining whether, “as a matter of economic reality, the individuals are dependent upon the business to which they render service.”

Summary judgment in favor of Uber in a suit by UberBLACK limousine drivers challenging the ride-sharing service’s classification of them as independent contractors, rather than employees, was inappropriate, ruled the Third Circuit, because genuine disputes of material facts remained. Although Uber submitted a statement of undisputed material facts, the drivers responded with almost a hundred pages of disputes, which went to the core of the DialAmerica factors and presented a genuine dispute. Accordingly, the appeals court remanded the matter to the district court as summary judgment was inappropriate (Razak v. Uber Technologies, Inc., March 3, 2020, Greenaway, J., Jr.).

Uber limousine service. In order for drivers to contract to drive for UberBLACK, they must form independent transportation companies (ITCs). Each ITC, in turn, entered into a Technology Services Agreement with Uber, which allowed the drivers to utilize Uber’s technology service to generate leads. Uber also required drivers to sign a driver addendum between each ITC and the driver, before the driver could utilize the driver app. The addendum outlines driver requirements such a valid driver’s license, insurance requirements, dispute resolution, and the parameters of the working relationship with Uber.

For UberBLACK, Uber holds a certification of public convenience from the Philadelphia Parking Authority (PPA) to operate a limousine company. Some UberBLACK providers operate under the PPA certificate held by Uber. Additionally, approximately 75 percent of UberBlack drivers use Uber’s automobile insurance.

The plaintiffs were certified limousine drivers who provided rides through the UberApp. They brought a collective action against Uber alleging that the ride-sharing service violated the minimum wage and overtime requirements of the FLSA. Additionally, the drivers contended that time spent online on the Uber app qualified as compensable time under the FLSA.

Use of UberDriverApp. UberBLACK drivers are free to reject trips for any reason, aside from unlawful discrimination. However, if a driver ignores three trip requests in a row, the UberDriverApp will automatically move the driver from online to offline, which means that the driver cannot accept additional trip requests. Uber sets the financial terms of all UberBLACK fares. Uber also has regulations under which it logs off drivers for a period of six hours if the driver reaches Uber’s 12-hour driving limit.

Not employees. On appeal, Uber reasserted that the drivers are not employees as a matter of law, and therefore, the putative class action should be subject to summary judgment. It asserted that drivers are not restricted from working for other companies, pay their own expenses, and on some occasions, engage workers of their own ITCs. Further, it claimed that it places no restrictions on drivers’ ability to engage in personal activities while online. The drivers in fact engaged in a range of personal activities, including accepting rides from private clients, accepting rides from other rideshare programs, sleeping, running personal errands, smoking, taking personal phone calls, and conducting personal business.

Or employees? For their part, the drivers contended that they are “employees” under the FLSA because they are controlled by Uber when they are online and perform an integral role for Uber’s business. The district court agreed with Uber and granted summary judgment; the drivers appealed that summary judgment order.

Employee status test. The Third Circuit utilizes the test outlined in Donovan v. DialAmerica Marketing, Inc., to determine employee status under the FLSA. In DialAmerica, the appeals court used six factors—adopted from the Ninth Circuit—to determine whether a worker is an employee under the FLSA: (1) the degree of the alleged employer’s right to control the manner in which the work is to be performed; (2) the alleged employee’s opportunity for profit or loss depending on his on managerial skill; (3) the alleged employee’s investment in equipment or materials required for his task, or his employment or helpers; (4) whether the service rendered required a special skill; (5) the degree of permanence of the working relationship; and (6) whether the service rendered is an integral part of the alleged employer’s business.

“Courts should examine the circumstances of the whole activity,” said the court, determining whether, “as a matter of economic reality, the individuals are dependent upon the business to which they render service.”

Genuine disputes of material fact. For summary judgment to have been appropriate, there must have been no genuine disputes as to any material facts on the record, entitling Uber to judgment as a matter of law. Here, the ultimate question of law was whether the drivers were employees or independent contractors. DialAmerica teaches that where there are questions of fact that need resolution, these questions must go to a fact-finder. In this instance, Uber submitted a statement of undisputed material facts to which the drivers responded with almost a hundred pages of disputes; these disputes go to the core of the DialAmerica factors and present a genuine dispute of material facts. Accordingly, the appeals court remanded the matter to the district court.

Right to control. Actual control of the manner of work is not essential; rather, it is the right to control which is determinative. The parties contested whether Uber exercised control over the drivers: Uber categorizes the drivers as users of the UberApp to connect with riders, which might imply the drivers were independent contractors. It also contended that drivers can drive for other services, and that it did not control the schedule start or stop times. However, the drivers contested each of these assertions. They pointed out that they can’t drive for other services while connected to the UberApp, the company’s deactivation policy provided that activities outside of Uber’s system are prohibited, and that offers of rides are solely at the discretion of Uber. These factual disputes all go to whether Uber retains the right to control the drivers’ work.

Opportunity for profit or loss. Similarly, the appeals court disagreed with the district court’s determination that there was no genuine dispute as to the opportunity for profit or loss. While the district court found that drivers could be strategic in determining when, where, and how to utilize the app to obtain more lucrative trip requests and to generate more profits, the appeals court noted that Uber decides (1) the fare; (2) which driver receives a trip request; (3) whether to refund or cancel a passenger fare; and (4) a driver’s territory, which was subject to change without notice. Moreover, factors that determine an UberBLACK driver’s Uber profit, like advertising and price setting, are also controlled by Uber. Thus, summary judgment was inappropriate.

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