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Will Uber’s U.K. Loss Jump the Pond? Gig Worker Status Explained

Feb. 22, 2021, 5:27 PM

A U.K. Supreme Court ruling against Uber Technologies Inc. likely means fines, back pay, and more legal challenges to app-based companies there, but will the U.S. gig economy face a similar blow?

The answer: Not any time soon.

The ruling last week found that Uber drivers should be entitled to rights such as minimum wage, holiday pay, and rest breaks. A similar case is nowhere near the U.S. Supreme Court, leaving the employment status of gig workers at the mercy of a patchwork of federal and state laws.

California, for example, has been locked in a high-profile battle with gig companies, while the Biden administration moves in to evaluate the gig worker landscape at the federal level.

The U.S. Labor Department last week rescinded guidance from the Trump administration that said a gig company’s workers were contractors and not employees under a federal wage law, and has indicated it will reconsider a business-friendly rule for independent contractor relationships.

App-based companies such as Uber, Lyft Inc., and DoorDash Inc. rely on a business model that allows drivers to sign up for what’s essentially contract work. In both the U.K. and the U.S., this largely means that the companies haven’t been on the hook for benefits of more traditional employment relationships.

1. What’s the law in the U.K.?

In the context of app-based companies, what the U.K. calls “self employed” is roughly the U.S. version of “independent contractor.” Such a distinction is key in both the U.K. and the U.S.

Workers in the U.K. can fall into three buckets: “self-employed"; individuals who work under employment contracts; and individuals who work under “workers’ contracts,” where they personally perform services as part of a profession or business undertaking carried on by the other party.

The U.K. court ruled that Uber drivers are in the third category and entitled to minimum wage, paid leave, and other job protections.

The classification designations are essential to why the U.K. ruling doesn’t directly provide any weight to similar arguments made in the U.S. They work within different parameters, and the arguments levied for benefits fall under a different set of factors.

2. How is U.S. law different?

Generally, workers in the U.S. are either independent contractors or employees. Tests to determine worker classification differ between federal and state laws, and even among specific laws governing issues like wages, discrimination, labor, taxes, and unemployment insurance.

In its simplest form, a contractor would be like a plumber who performs a service for another business. With the rise of the app-based gig economy and companies increasingly relying on contractors for core parts of their business, the lines between employee and contractor have blurred.

Companies—including media companies, tech giants, and corporations that run franchises—have been hit with litigation accusing them of misclassifying their workers as contractors to avoid paying minimum wages and overtime, or providing workers’ compensation, health care, or other employee benefits.

In this video, we explore why tech companies and state governments are at odds over how to properly classify gig workers.

3. What are the different tests in the U.S.?

Under federal laws, courts are asked to balance various factors to determine contractor or employee status. The states often have their own standards.

Thirty-seven states used some variation of a three-part “ABC test” to determine employment status for unemployment insurance as of 2018, according to the U.S. Labor Department. New Jersey, Massachusetts, and California are among those that adopted the test in the wage-hour and labor spheres.

The ABC test requires a company to clear three hurdles to label workers as independent contractors. Companies must show a worker has freedom from control over how to perform the services they provide; that the services are outside the business’ normal variety of work; and that the worker is engaged in an independently established role.

4. What’s the effect of California’s gig battle?

California’s battle over worker classification creates a blueprint that companies such as Uber and Lyft would like to see catch on in other states, as well as the federal government. They’re lobbying states and Congress for a “third classification” or “portable benefits.”

In December, a ballot measure known as Proposition 22, bankrolled by gig companies, took effect and created a carveout from California’s ABC test. That measure offers insulation from worker-status lawsuits by specifically classifying drivers for app-based transportation and delivery companies as independent contractors, unless the businesses set drivers’ hours, require acceptance of specific ride or delivery requests, or restrict working for other companies.

It also requires the companies to provide some entitlements that are traditional in an employment relationship, including minimum earnings, health-care subsidies, and vehicle insurance. It restricts certain local regulation of app-based drivers and criminalizes impersonation of drivers.

5. What’s next?

In the U.K., Uber said last week’s ruling only applies to the drivers who filed suit, but it’s expected to have broader reach. Drivers can sue for back pay, the company could be fined, and the business model will face more challenges there.

Battles lines in the U.S. were quickly drawn after the Biden administration took the helm, with gig-economy and worker advocates jockeying for how Congress and the federal government should address the classification questions.

In the states, Uber and other gig companies are backing measures that would mirror California’s Proposition 22, which would allow drivers to remain contractors, but have some benefits. The companies also are pushing the concept to Congress.

Worker advocates say that anything short of a full employment relationship cheats workers and deprives them of necessary benefits, and are pushing Congress and the Labor Department to provide stronger protections. A union-backed proposal known as the PRO Act would apply the ABC test to the National Labor Relations Act, and therefore likely grant union organizing rights to gig workers, but not apply to wage and hour disputes.

Meanwhile, the DOL has said it will scrutinize more closely whether Silicon Valley app-based businesses can continue to avoid responsibility for wage standards by treating their workforce of service providers as independent contractors.

To Learn More:
—From Bloomberg Law

Uber Loses U.K. Ruling on Drivers in Blow to Gig Economy (1)

California Gig Workers Still Can Sue for Wages After Prop 22 (1)

Trump’s Gig-Worker Guidance Thrown Out by Biden Labor Department

Uber Won Its Prized Contractor Status for Drivers. Now What? (2)

New Jersey Pursues Lyft on Taxes, Keeping Pressure on Gig Model

To contact the reporters on this story: Erin Mulvaney in Washington at emulvaney@bloomberglaw.com; Kathleen Dailey at kdailey@bloomberglaw.com

To contact the editors responsible for this story: Jo-el J. Meyer at jmeyer@bloomberglaw.com; Jay-Anne B. Casuga at jcasuga@bloomberglaw.com

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