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Employee or Independent Contractor? Uber Ruling Could Create Roadblock for Worker Classifications

Uber is the highly successful car service based in San Francisco that is competing with cab companies around the world.  They provide service in 300 cities and are expanding rapidly.  Consumers love it.  With the use of a simple smart phone app, a car arrives at your location and transports you to your destination.  No tipping is expected and payment is automatically collected through your credit card, which is registered with Uber.  The company is expected to reach $10 billion in revenue in 2015.

One key to Uber's success is its equipment/driver arrangement.  The car is owned by the driver, who gets to keep 80 percent of the fare.  The driver and the car are screened carefully by Uber to assure quality.  But here's the real kicker:  Uber treats the driver as an independent contractor as opposed to an employee.  That means no mandatory health-care expense, no Social Security contribution, no unemployment compensation expense, and no workers' compensation premiums to pay.

But now the California Labor Commission has recently ruled that Uber's drivers are "employees."  The ruling only applies to California and Uber has appealed, but if the decision sticks and other states/countries follow, Uber is in trouble and its 160,000-plus drivers may need to find some other way to spend their time.

So, what's the difference between an independent contractor and an employee?

The question has come up frequently, mostly in the context of a worker seeking coverage for unemployment benefits or workers' compensation benefits.  The test is an objective one.  In other words, it does not matter what the parties subjectively believed or intended, the determination is based on a review of the circumstances surrounding the relationship.

In Pennsylvania, the test for determining whether a worker is independent or an employee was set forth in Morin v. Brassington, 871 A.2d 844 (Pa. Super. 2005).  The analysis involves an eight-point test that includes a review of whether the worker is paid by the time or by the job, the right to end the engagement at any time, and who supplies the tools/equipment to do the work.  But the courts have said that the most important factor is, "Who controls the manner in which the work is done?"  If the worker controls the "manner" in which the work is done, they are likely an independent contractor.  If the person or entity that engages the worker controls the "manner" of the work, the worker is likely an employee.  These are often hard calls - or, what lawyers and judges refer to as "fact intensive cases".

The outcome of this analysis is vitally important to the person or entity that engages the workers.  It has a major impact on labor costs.  But the determination of whether one is an employee or independent contractor also dictates who is liable for harm caused by the worker.  The basic rule is that a person who engages the services of an independent contractor is not liable if that contractor causes harm.  On the other hand, an employer is liable, together with the employee, if the employee injures a third person.

So, back to Uber.  If a driver in the Uber system causes an accident and injures the passenger in the car, is Uber liable in addition to the driver?  No doubt the driver will have liability insurance on his or her car, but what if the coverage is not enough to compensate the victim?  Can the injured party look to the deep pockets of Uber?  We don't know as yet.  The outcome will depend on each state's determination of whether Uber is an employer or a company that has engaged independent contractors to provide car services to the public.  That determination may well dictate whether this increasingly popular car service can survive.

For more information on worker classifications, contact W. Patrick Delaney at 814/870-7658 or pdelaney@mijb.com.