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ANALYSIS: The Liability Impact of Gig Worker Status

Nov. 4, 2019, 11:18 AM

Fights about worker classification could strike at the very heart of the gig economy. Labor organizations and tech companies already have committed millions of dollars to this issue, and recent developments in legislatures and courts indicate that the fight over worker classification is only likely to intensify. The ongoing debate carries impact beyond the issues of wages and benefits. It will also determine who is liable for injuries caused by gig workers.

State and federal law provide workers classified as “employees” with various protections, like a guaranteed minimum wage, overtime pay, and subsidized health care. Classifying workers as employees helps protect consumers, too. The tort doctrine of respondeat superior, for example, holds employers liable for injuries caused by their employees’ negligence. Although the employer itself may have done nothing wrong, the doctrine represents a social decision that employers, rather than consumers, should bear the responsibilities for injuries incurred in the operation of the employer’s business.

Uber and other companies in the gig economy are trying to change all that. Part of the competitive advantage enjoyed by these companies results from their ability to shift employment costs onto the workers themselves by classifying them as independent contractors. While workers get some benefit from the flexibility, they retain costs traditionally allocated to employers, such as subsidized healthcare. Similarly, although Uber and Lyft offer liability insurance for their drivers, their classification as independent contractors may materially limit the rights of an injured consumer to seek redress directly from the company if the driver’s policy limits are insufficient or if the insurance claim is denied.

Not everyone is happy about it, and the classification of gig economy workers as independent contractors has come under fire in both in the statehouse and the courthouse.

Legislative Attacks

The most prominent legislative attack has been California’s AB 5, which codifies the California Supreme Court’s decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles, and institutes a stringent three-part “ABC” test to make it more difficult to classify workers as independent contractors.

The effect of the bill remains to be seen, but it is clear that Uber and Lyft are committed to fighting it. Negotiations with lawmakers continue. Teaming with Lyft, Uber is also planning on spending $60 million to take the question to California voters in a ballot measure aimed at mitigating the effects of AB 5 by creating a new classification for ride-share drivers. Door dash has also committed an additional $30 million to the initiative.

The companies are also prepared to limit the effect of the bill through the courts. Importantly, AB 5 does not specifically require ride-share workers to be classified as employees; it merely provides a framework for analyzing classification decisions. Uber has stated that it meets the ABC standard because carrying passengers is “outside the usual course of Uber’s business, which is serving as a technology platform for several types of digital marketplaces.” Uber has used this argument to persuade a number of courts in the past. If the company is successful, the protections the bill offers to drivers and consumers will be undermined.

California has also inspired other states to follow suit. As Bloomberg Law has reported, numerous New York lawmakers and Governor Cuomo have voiced support for similar legislation.

Legal Battles

The classification fight also has been raging in court. According to one of Uber’s SEC filings, Uber has paid $20 million to settle misclassification class actions brought by drivers who did not sign arbitration agreements. More than 60,000 drivers whose contracts with Uber contained arbitration agreements have also sued, alleging misclassification. Uber has reached a preliminary settlement to resolve the majority of those claims, and estimates that the total settlement value will be between $146 and $170 million. (Uber has also faced adverse decisions in Europe, including in the U.K.)

For their part, the Department of Labor and the National Labor Relations Board’s General Counsel have issued opinion letters suggesting that gig economy workers are properly classified as independent contractors. It is therefore unlikely there will be any federal enforcement actions alleging these workers are misclassified.

Read about other trends our analysts are following as part of our Bloomberg Law 2020 series.

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