Are Uber Drivers Employees and New Laws for 2015 [e135]

January 7, 2015

Nasir and Matt talk about the recent motion filed by Uber claiming its drivers are not employees. They then answer the question, “As a business owner in California, what new laws should I know about?”

Full Podcast Transcript

NASIR: All right. Welcome to our podcast where we cover business in the news and answer some of your business legal questions that you, the listener who is listening to this podcast, can send in to, and that’s an email address just to remember.
And my name is Nasir Pasha.

MATT: And I’m Matt Staub.

NASIR: We are in the middle of the year now, right?

MATT: Yeah.

NASIR: Pretty much.

MATT: Yeah, took a big break.

NASIR: We can stop saying “Happy New Year!” now.

MATT: Oh, yeah, I don’t know when the cut-off is for that.

NASIR: I think January 2nd.

MATT: Is it?

NASIR: Yeah, in my mind.

MATT: It’s dependent on the year because it falls on a Thursday this year so people might not be… or this year the 5th is the cut-off so, by the time this episode comes out…

NASIR: Yeah, but if you use that logic then, if I see somebody for the first time in a year on December 1st then I would say “Happy New Year!” then. What’s the rule?

MATT: Well, I’m saying that I think that people aren’t going to see each other until the 5th. I don’t know. I’m going to test it out and see what people say to me and then I’ll let you know the…

NASIR: Report back.

MATT: Yeah, the results.

NASIR: All right. Well, what do we have?

MATT: Oh, one of your favorite topics, for sure.

NASIR: Yeah.

MATT: Uber.

NASIR: Yeah, we’re talking about Uber, but I have to give some disclaimer.
Obviously, Uber has success and they’re good at what they do and they raised a bunch of money and all that, but I guess my opinion is just that, man, how they’re doing it is just so annoying, you know? Those kind of “do no evil” kind of culture that we think start-ups have but they actually don’t, you know?

MATT: Yeah, and I’m probably going to have to take an Uber tomorrow.

NASIR: They do have taxis in San Diego, and taxi services.

MATT: It’s so much harder to get those if they don’t drive by.

NASIR: They have apps! They have apps, I think. Well, anyway…

MATT: So does Uber.

NASIR: Yeah, but Uber, et cetera, et cetera. We’ve already talked about it.

MATT: I will look up on Yelp which is better – Uber or taxis – and that’s what I’ll decide.

NASIR: No! Definitely, I’m going to make it my business to destroy those two companies this year. No, I’m not that crazy.

MATT: Good luck!
So, with this, I mean, there’s actually a lot of things in the news with Uber. I think there’s a new story that comes out every day and mostly bad, but the one we’re going to talk about here is the drivers who sued Uber, and the reason we’re talking about this is it’s going to come down as a big thing of whether these drivers are going to be considered employees or independent contractors which should come as no surprise. Uber is filing this motion for summary judgment saying that its drivers are not employees because they do not provide services to Uber. Let’s see their actual argument here. Basically, they’re saying they’re a lead generation, almost, of sorts and they get the calls in and then they send them out to the drivers and, at that point, it’s all up to the drivers on, you know, kind of how they do everything. So, in that case, these people are not employees; they’re contractors. These are all their own individual businesses that they’re running.

NASIR: Yeah, and this is the exact same issue that FedEx drivers had to deal with earlier this year and we need a follow-up on that, too, because, I mean, that was a huge decision were a court said that FedEx drivers were misclassified as independent contractors and they were actually employees. But, if you recall on that case, as we know, we look outside our offices, we see FedEx drivers in FedEx trucks, right? They’re using the brand name and all that so there’s a little bit more closer integration between the drivers and FedEx where Uber, obviously, they use their own vehicles. Technically, even in FedEx, they technically own their vehicles and I think they have some kind of leasing mechanism there. But that kind of setup was seen through by the courts as just kind of a sham setup. At the end of the day, they still had a lot of control.
Uber makes the same argument but I think they’re a little bit more successful because of the aspect of there is a separation that Uber drivers can basically work when they want whereas FedEx drivers do have schedules and routes and things like that and they do work at certain times and are a little bit more restricted. And so, I think they have a better argument from that perspective, buy I’m still looking for the case and I haven’t seen an attorney do this yet. I think there’s a viable case to argue that Uber is actually a franchise and they are trying to sell their franchise to these Uber drivers and that’s something that I haven’t seen before because, if you break it down a little bit, they call these… what do they call the actual Uber drivers? It’s such a funny name. Yeah, a small business entrepreneur – that’s how they sell this dream of being an Uber driver. They even got into trouble – and I wrote about this last year – that they released this press release – and they still have it up, by the way – that UberX drivers make a median income of $90,000 in New York City and $74,000 in San Francisco. But the math didn’t seem to make sense for people when, after people started calculating it, it looks like – and I don’t know if Uber’s actually confirmed this but – it looks like you have to work 80 hours a week in order to make that kind of money, and when they say “median,” there’s something that doesn’t make sense there and the point is that they’re trying to sell this dream of being an Uber driver because, really, the Uber driver is the meat of the company. That’s where their worth is. Without them, they would be nothing.

MATT: I’d be curious to know what the drivers get, what their cut is from every ride.

NASIR: I know that they increased the cut that Uber used to take. So ,Uber drivers are making less. And then, on top of that, Uber drivers are making less too because there’s more Uber drivers on the road. There are plenty of Uber drivers that don’t even make minimum wage when you take into consideration that they have to pay the cost for their vehicle, they have downtime and all that, and there’s been a lot of failure stories but there’s a lot of success stories, too.

MATT: Yeah.

NASIR: So, it kind of goes both ways, but that’s kind of the point. In my mind, I’m looking at the franchise aspect of things because franchise law is designed to protect the franchisees because they’re putting in significant commitment. A lot of times, they’re buying into something and they’re giving royalties to the franchisor. And so, the law requires all these disclosures to the franchisees. And so, what I feel here is that, at the least, okay, maybe you’re not a franchise, but at least disclose accurate information to your drivers because, for them, it’s a commitment, too. They may quit their job. They may, you know, repair their vehicle and even lease a vehicle for these purposes, and all these different aspects, and you go out there and then spend months working as an Uber driver and then find out later that they made less than they would have if they would have just got a regular job.

MATT: My office that I work out of actually used to have meetings for Uber drivers all the time. Uber would set up shop there and do their meetings to get new drivers. I should have sat in on one of them, see what they tell people.

NASIR: I wonder if they require a confidentiality agreement for sitting in on all those meetings, I wonder.

MATT: You know, I’m not sure.

NASIR: We should totally do that. Go on the inside – insider information – and then break an NDA.

MATT: That’s a way to go for sure.

NASIR: Yeah.

MATT: That’s actually our question of the day, too.

NASIR: Well, wasn’t that a question that someone asked? Didn’t we already answer that question where someone asked to have their employees sign an NDA at the interview?

MATT: Yeah, we definitely talked about that.

NASIR: I can’t remember if we actually answered that or not, but I know we got that question.

MATT: Yeah, we definitely talked about it one way or another.

MATT: But let’s get into our real question of the day because we’ll have plenty of time to talk about Uber at another date.

NASIR: Yes, we will.

MATT: Beginning of the year, always a question.
“As a business owner in California, what new laws should I know about?”

NASIR: Yeah, there’s a whole – I don’t know – there’s probably at least, what would you say? Twenty or so of them; most of them are very subtle and probably not going to affect you, but there’s about twenty or so that do affect employment issues.

MATT: Yeah, and I think the biggest one which people have probably heard of – or maybe they haven’t, I don’t know.

NASIR: I hope they have.

MATT: It’s the mandatory paid sick leave that you have to give to your employees – up to three days per year – which, in the grand scheme of things is very little, the grand scheme of things for an individual employee, it’s very little – three days spread over, what is it? The number of days you’re going work, three days isn’t that much at all. But, for the employer, this is pretty big because, if you didn’t have a policy in place before, now you’re essentially giving them every single person three days off and also having to pay them.

NASIR: Yeah.

MATT: That’ll be a pretty big one for employers in California.

NASIR: Now, what’s a little confusing about this law – and I’ve already seen a lot of employers fall into this trap after reviewing their manual when they made these changes – is that, even though the minimum is three days, the accrual rate is different; it’s at a higher rate than it would be if it was equal to three days meaning it’s one hour for every 30 hours worked. Let’s say that they’re working full-time, if they worked a full year at that rate, it would actually amount to almost eight days a year. So, you can cap it at three days, but you also have to accrue it at a certain rate. Either, if you accrue at a certain rate, don’t forget you need to cap it, too, because it may end up being a lot more than what you would expect. So, that’s a very common trap that we’ve already seen when going through our clients’ implement manuals and policies.

MATT: You can correct me if I’m wrong; that’s probably the biggest one on the employment side. I mean, there’s other ones, too.

NASIR: That’s the big one. It’s not even going effect technically on January 1st. Well, you have to have the policies in place, but the accrual doesn’t need to start until, I think, June – June 30th or so.

MATT: I believe.

NASIR: Or July 1st it looks like. I mean, obviously, we’ve had the minimum wage this last summer and that has different implications. They have different penalties now for minimum violations including waiting time penalties. There was some other limits on the use the arbitration agreements and this can be applied towards employment contracts to a certain extent and that’s pretty significant. But one of the other aspects of those law changes is that it requires arbitration panels like AAA and JAMS – two very common arbitration panels – to publish certain reports. Now, I don’t have a good understanding of what details but what I have read so far is that some of the reports actually disclose who the employers are and things like that. What’s so significant about that is, those of you who know me, I’m not a big fan of arbitration in the first place, but sometimes with employment contracts I have, from an employer’s perspective, it’s good. But, if you’re getting rid of the confidentiality aspect of it which is a big, huge proponent of why arbitration is good, then it kind of loses all its benefits. And so, that’s a pretty big change and it just confirms my reasoning why arbitration is just so overrated – by attorneys, for that matter.

MATT: Yeah, arbitration is something, I feel like you hear it a lot more than you should.

NASIR: Yeah. They’re in every agreement, unnecessarily. They became boilerplate to a certain point. Right now, I don’t think it’s really a great idea to have that as a standard term unless you really know you want that in there.

MATT: It is everywhere and, you know how I do some estate planning, it even comes up in there in terms of whether the successor trustee or whoever can bind the trustor with an arbitration clause in a contract. So, bad news for Michael Scott if he opens up his paper company in California; he has to provide supervising training on abusive conduct. So, he’s going to run into some problems there.

NASIR: Also, if he has interns, too, right? Because, I think, once he’s in and they have interns and if you have interns and volunteers unpaid, before this year, the discrimination harassment protections didn’t extend to unpaid interns and volunteers, so that’s going to change as well – well, that has changed, I should say. And so, now they have those protections under FIA.

MATT: So, those are kind of some general new laws. We can keep going on and on but, every minute we spend on this, the more boring it’s going to get.

NASIR: Yeah. So, plenty to come, I’m sure.
All right! Well, thanks for joining us. Let’s start out this new year right even though we’ve already started out the new year but, for our second episode, make sure you leave a positive review on iTunes if you would.

MATT: Yeah, and as always, keep it sound and keep it smart.

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Legally Sound Smart Business

A business podcast with a legal twist

Legally Sound Smart Business is a podcast by Pasha Law PC covering different topics in business advice and news with a legal twist with attorneys Nasir Pasha and Matt Staub.
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