Are Uber Drivers Employees of the Company?

There are so many reasons to live in fabulous Las Vegas; we have great weather, low taxes, a healthy job market, and plenty of entertainment for all walks of life. But one downside of life in the desert is that it is rather difficult to get around without a car. The public bus system in Las Vegas is difficult to navigate and entirely inconvenient for many1)Not to say that our bus drivers work extremely hard, and we appreciate it very much. Taxis tend to cater to tourists and do not seem to want to do long drives to and from homes far from the strip2)Multiple people in my office have stories of cabs refusing to drive to the suburbs from downtown. Enter Uber, the immensely popular, ride sharing service.

 

What is Uber?

The concept of Uber is simple: download the app on your phone, and request a ride. The app will instantly show you the drivers in your area and send the closest one to come get you. Often times, the wait is only a matter of minutes. Each driver is assigned a rating by reviews of customers and if a driver has a low rating, a rider can reject that driver and wait for the next closest one. It is convenient, fast, and relatively3)Compared to a cab cheap. It is even safe for the drivers who never have to carry money because all payment is done through a credit card on the app.  Uber takes 20% of the fare and the rest belongs to the driver4)Additionally, the app will estimate the entire fare up front so you will not be surprised upon your arrival.

Many locals/non-locals in Nevada like to go out at night and have a drink or two, so Uber will likely reduce DUIs and related accidents because it is so simple/easy; it is silly not to use it if you need a ride. But, a unique service like Uber does come with quite a few legal and practical issues that relate to classifying drivers and paying taxes.

 

Employees vs. independent contractors

As a general matter, workers either fall into two categories: employees or independent contractors. Employees are the default worker status, when someone:

  1. works closely for an employer,
  2. is under an employer’s control, and
  3. is an integral part of the employer’s operation.

Hiring employees can be expensive for an employer who has to pay minimum wage, pay payroll and other taxes, provide breaks, purchase health insurance, and comply with various regulations regarding work environment and benefits. Hiring an independent contractor is cheaper by far. An independent contractor:

  1. works outside of the control of the employer,
  2. often on a more temporary or piecemeal basis, and
  3. must pay all taxes on their own without employer withholding.

Independent contractors are cheaper because employers do not have to pay payroll taxes, provide insurance, provide a place to work, and they do not have to comply with wage and hour laws because the contractor works on his or her own time. Each employment relationship is unique and must be examined on a case by case basis to determine whether someone is an employee or independent contractor.

 

Are Uber drivers  employees or independent contractors?

Uber claims that their drivers are independent contractors, but I am not so sure. Why does it matter, you ask? Well, if Uber drivers were classified as employees, the company would have to spend quite a bit more money paying taxes, benefits, insurances, and possibly providing cars for the drivers to use while working. But, all of these costs would likely be passed onto the consumer and likely hurt Uber’s bottom line. On the other hand, employees would benefit by receiving protections of wage and hours laws, receiving benefits, and being eligible for unemployment benefits if laid off.

Interestingly, despite the benefits, being classified as employees might be the exact opposite of what Uber drivers want. As it stands now, once hired by Uber, each driver must take his or her own personal vehicle to a designated mechanic for inspection. It is this personal vehicle that drivers will use for work. Each driver decides when to work, for how long, and where to drive. They have no one to answer to other than the reviewers who will ensure repeated business and an ongoing job with their positive feedback. A job like this can mean extra money for someone with another job or an income for someone who has limited childcare. There are many benefits to being an independent contractor in this business, and Uber likely appeals to many people who shy away from a 9-5 traditional setting job5)Paging Las Vegas buskers.

Although Uber claims their drivers are independent contractors, recent decisions by California courts have found otherwise for drivers in similar circumstances to those of Uber drivers here in Nevada. It remains to be seen whether Uber is eventually forced to classify their drivers as employees, but there are so many pros and cons to being an employee and an independent contractor, that Uber is really left between a rock and a hard place. Their business model depends on the flexibility and independence of each driver but at the same time, wage, hour laws and benefits regulations are designed to protect the work force.

 

Now what for Uber Drivers?

But what if Uber employees just will not fit into either category? Nevada could recognize a new class of employees to better protect workers and meet the needs and budget of a modern company like Uber.  Other countries, like neighboring Canada, have various categories of workers. Maybe therein lies the answer. If Nevada creates a new class of workers, Uber drivers could maintain independence and still receive important protections and benefits. Many independent contractors could potentially benefit from a new category of worker: freelance writers, web designers, and online marketing specialists, just to name a few.

I do not expect Uber to reclassify their employees since it cuts into their bottom line. But, it is a fairly close call as to whether the drivers are employees or independent contractors. Uber controls prices and monitors employee performance like a traditional employer, but Uber does not tell drivers when to work or how to drive, allowing them to make the decisions like an independent contractor would do. Yet, if Uber is sued for wage and hour violations, it is fairly likely that a judge would find a driver to be an employee under the control of Uber, which is what happened in California. So, if lawsuits like that cut into Uber’s bottom line, I suppose there would be a point where it would just be cheaper to have drivers be employees. I would guess though, that it would take a substantial number of lawsuits to make it financially beneficial for Uber to amend its policies. Perhaps if it looks like Uber may be in trouble for misclassifying employees down the road, then they might spend the money to lobby for new classifications. We shall see.

But, that is a long time away since Uber’s just getting started. It appears right now that the state of Nevada has given Uber to “go ahead” but Clark County has not and is trying to stop Uber from operating. But that’s a story for another day…..

Footnotes   [ + ]

1. Not to say that our bus drivers work extremely hard, and we appreciate it very much
2. Multiple people in my office have stories of cabs refusing to drive to the suburbs from downtown
3. Compared to a cab
4. Additionally, the app will estimate the entire fare up front so you will not be surprised upon your arrival
5. Paging Las Vegas buskers
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