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The Art of Settling But Not Resolving Gig Worker Status Disputes

Sept. 20, 2022, 9:30 AM

Gig economy companies like Uber Technologies Inc., Lyft Inc., and Grubhub Inc., have paid hundreds of millions to defend and settle claims over the past decade that they wrongly classified workers as independent contractors, but legal and practical hurdles for plaintiffs and state enforcers mean these companies have not had to reclassify their workforces.

New Jersey’s extraction of $100 million from Uber follows this trend. While it resolves allegations that the company misclassified its drivers and failed to pay unemployment insurance taxes, Uber and a subsidiary will not be required to change the way they classify drivers going forward.

Such multimillion dollar payouts appear to be a good deal for Uber and other gig economy companies, which have contended that being forced to make drivers employees would necessitate business model changes that would cost them far more than litigation does.

One major hurdle for plaintiffs is that companies force gig worker claims into arbitration, and federal courts often uphold mandatory arbitration clauses in employment contracts, said Shannon Liss-Riordan, an attorney based in Massachusetts who has sued Amazon.com Inc., Uber, Lyft, and others on behalf of gig workers.

“As private plaintiffs, we have our hands tied behind our backs because of the Supreme Court’s willingness to allow these companies to use arbitration clauses,” she said, arguing that state and federal agencies have a better chance at forcing change through injunctions.

But winning an injunction and making it stick has proven tricky.

A Massachusetts case filed in 2020 isn’t likely to be resolved before next year, and an injunction the California attorney general won against Lyft and Uber in 2020 was tossed out after the industry convinced voters to pass a ballot measure, Proposition 22, protecting the industry’s independent contractor model.

Employee status would mean drivers get workplace benefits and legal protections, including minimum wage and overtime laws, unemployment insurance, workers’ compensation, and the right to unionize.

VIDEO: Gig Economy Workers, App-Based Companies, and the Law

Flexibility Argument

Gig companies point to opinion polls that they say show drivers don’t want employee status.

“It is abundantly clear that people who use the Uber app to make money do so because they value the flexibility,” Alix Anfang, an Uber spokesperson, said in an email. “That’s why we are working with leaders to ensure drivers and couriers gain important benefits while remaining independent.”

The legality of that model has faced challenges from the start, especially in Democrat-led states. The industry and some driver groups have advocated for legislative compromises such as one enacted this year in Washington state giving drivers benefits without employee status.

New Jersey Labor Commissioner Robert Asaro-Angelo said it’s a “false premise” that workers have to choose between flexibility and employee status. Businesses commonly offer part-time, flexible schedules to employees, he said.

Securing the $100 million payment into New Jersey’s worker benefits funds was a big first step toward bringing Uber into compliance that other states should emulate, Asaro-Angelo said.

“When you extrapolate this nationally, we’re talking billions with a ‘B,’ billions of dollars that are owed to state trust funds,” he said.

Whether such state actions might motivate companies to change drivers’ employment status is unclear.

Instead, the industry could see the New Jersey payment as helping “illuminate a policy compromise opportunity,” said Adam Kovacevich, founder and CEO of tech industry association Chamber of Progress. “I’d be willing to bet many of the gig work platforms would accept states allowing drivers to be eligible for UI benefits so long as the state reinforces that they remain independent contractors.”

Cost of Doing Business

Recent driver lawsuits have seen DoorDash Inc. agree to pay $100 million, Postmates $32 million, Uber $8.4 million, and Lyft $15 million to settle drivers’ claims that the companies misclassified them, without any change in company policy going forward. That’s despite some of the drivers’ initial lawsuits seeking a court order requiring the companies to reclassify them as employees.

“That’s pretty typical of settlements to be honest, particularly in private litigation,” said Liss-Riordan. Usually, “the act of having to defend the case and fight it out provides the impetus for the company to clean up its act going forward,” she said.

Beyond the few court cases, many more go to arbitration. More than 150,000 Uber drivers have filed or plan to file arbitration claims alleging misclassification, the company told investors in its latest annual report. Uber has paid $372 million through 2021 to resolve such arbitration cases.

Despite the millions spent on litigation—plus lobbying efforts that include the $200 million campaign for California’s Prop. 22—the industry has decided waging the legal battles is less expensive than switching drivers to employee status.

Being forced to reclassify drivers “would require us to fundamentally change our business model,” Uber said in the annual report, potentially making it harder to recruit or retain enough drivers and also leading to significant price increases.

The popularity of these services has dissuaded more aggressive regulatory action, said Bill Okerman, a worker rights advocate and board member of the Boston Independent Drivers Guild.

“The issue of lack of enforcement, it’s inexcusable,” he said. “I wish I could really explain why a state, any jurisdiction, would allow this to happen. But as we know, it’s happened all over the country.”

Still Trying

Despite the difficulties, plaintiffs’ lawyers and regulators aren’t finished pressing the classification issue. Besides the California and Massachusetts attorney general cases, the San Francisco district attorney is suing DoorDash over alleged worker misclassification.

Liss-Riordan’s litigation continues, including cases on behalf of Amazon delivery drivers, plus Lyft drivers in California. She sued Lyft early in the Covid-19 pandemic seeking paid sick time for drivers, and now is asking the California Supreme Court to save her injunction request from being sent to arbitration with the rest of the case.

Asaro-Angelo plans to hold up New Jersey’s $100 million Uber win as a model for other states during the National Association of State Workforce Agencies meeting this week in Chicago.

“I’ll certainly be exhorting my colleagues across the country to be doing the same,” he said.

—with assistance from Joyce E. Cutler in San Francisco

To contact the reporter on this story: Chris Marr in Atlanta at cmarr@bloomberglaw.com

To contact the editors responsible for this story: Rebekah Mintzer at rmintzer@bloomberglaw.com; Laura D. Francis at lfrancis@bloomberglaw.com