A federal US labour agency ruled in an ongoing case that Uber drivers are independent contractors and not employees. According to the agency, Uber drivers set their working hours, own their cars, and are free to work for Uber’s competitors, and hence cannot be considered employees under federal law. The recommendation memo (read a copy below) came from the general counsel of the US National Labour Relations Board, in a case which is pending before the NLRB regional director.

The NLRB general counsel’s memos are generally upheld in rulings. Many companies including Uber and Lyft have faced dozen of lawsuits accusing them of misclassifying drivers as contractors or “partners” under American federal and state laws, instead of as employees. Employees are significantly more costly because they are entitled to the minimum wage, overtime pay and reimbursements for work-related expenses under those laws.

Also, under the National Labour Relations Act, independent contractors cannot join unions and do not have legal protection when they complain about working conditions. The memo is a step in cementing that Uber drivers do not have labour rights.

The rationale for drivers being independent contractors, not employees

Two factors were weighed the most to decide whether drivers are employees or independent contractors,

  1. The extent of Uber’s control over how drivers conduct business
  2. the relation between the company’s compensation and how fares are collected

1. Lower company control, more freedom for drivers’ earnings: The labour board considered entrepreneurial opportunity or “economic gain” coming from a result of lower company control over employees and a “hands-off” approach, to decide that drivers are contractors. The fact that drivers own their cars, choose their work hours, and have the freedom to log in from any location and to work for Uber’s competitors, gave them control over their earnings (or entrepreneurial opportunity) since they could choose to ride for Uber, work for a different service, or work as something else entirely, hence backing their independent contractor status.

Lower company control over Uber drivers is proven given the fact that:

  1. Drivers choose when to login, receive trip requests, and how long to remain online (available for rides)
  2. Drives control their work locations, since they can login from wherever they are “within the broad confines of a geographic market, rather than being restricted to assigned routes or neighborhoods”
  3. “Drivers could, and often did, work for competitors. In fact, drivers could toggle between different ride-sharing apps at will over the course of an outing”
  4. Uber furthered the potential earnings of drivers by providing “surge” pricing; drivers knew which areas were experiencing surge prices since Uber provided them with a heat map showing so
  5. “Uber offered minimum earnings guarantees and other financial incentives for being online at certain locations and times and performing certain numbers of trips”
  6. Uber also maintained a rating system through which riders could express their satisfaction with a driver’s service or lack thereof

2. Payments to drivers: Uber retains flat fee from fares

Uber drivers retained all their fares and paid the company flat fees to operate during a fixed time period. The agency argues that this gives drivers “entrepreneurial opportunity”, making them independent contractors. Uber’s payment system implies lower company control over drivers and greater economic opportunity for drives, argues the memo:

Uber did not in fact control them (as discussed above), but, rather, relied on customers to maintain quality and insure repeat business without the need for control by Uber. In addition, the absence of a flat fee here actually increased drivers’ entrepreneurial opportunity, since this made it easier to take advantage of the unlimited freedom they had to work for competitors or pursue other ventures and drive for Uber only when it suited them

3. Further factors which establish independent contractor status

  • Additionally, the fact that drivers had complete control over their car and its maintenance, with limited company liability, again favouring independent contractor status.
  • Uber drivers were responsible for chief operating expenses such as gas, cleaning, and maintenance for their cars
  • Uber provided only the App, commercial liability insurance, and minor assistance such as reimbursement for the costs of cleaning spills and repairing damage caused by riders
  • Drivers shouldered significant risk of loss, since they invested significant capital and time to use the App, and fare earnings could fluctuate depending on where and when drivers logged in.

In India, ride hailing services including Uber and Ola operate under licenses; Uber has reiterated time and again that its drivers are ‘partners’ and not employees. It’s unclear however whether Uber drivers are employees (and hence governed by labour laws) or if they’re independent contractors. Drivers for Uber, Ola and other cab hailing companies held a countrywide strike last month protesting low wages, with many saying they were unable to repay debts.