cars traffic iStock_000003131055_LargeMuch is being reported in the media about the decision of the United States District Court for the Northern District of California certifying a class of drivers for the Uber ride service who contended that they were employees, not independent contractors.  O’Connor v. Uber Technologies, Inc., Case No. C-13-3826 EMC (September 1, 2015). The case is significant for its display of the inherent litigation risk for any new business model and for its impact on one of the most prominent players in the shared economy, but it is otherwise likely too early to assess its impact at this stage.

The O’Connor case was brought under California law ostensibly on behalf of 160,000 California Uber drivers for the period August 16, 2009, to the present. The plaintiffs contended that they were misclassified as independent contractors and entitled to recover under the California Labor Code as a result. Among their claims was one that they should have been given “tips” allegedly received by the company through its fee structure with passengers.

Incidentally, this was the same court that issued the trial court decision, later decisively overruled in Wal-Mart Stores, Inc. v. Dukes, 564 U.S. ___ (2011). Judge Chen, the judge assigned to the case, is a former ACLU lawyer and magistrate judge appointed to the federal bench by President Obama in 2009.

Uber, for its part, asserted that the drivers were independent contractors, as reflected in the driver agreements and based upon factors such as that the drivers kept their own schedules, generally used their own cars, and had no direct supervision. The plaintiffs, for their part, asserted that Uber exercised control through, among other things, establishing minimum standards for drivers and their cars, largely setting fees, and requiring certain levels of customer satisfaction.

On March 11, 2015, the court denied Uber’s motion for summary judgment. We blogged that decision here. In a nutshell, the court applied somewhat of a nest of tests based upon California and, to a lesser extent, federal wage and hour law.  While acknowledging that the ultimate test was the right of control, the court evaluated the case based on a series of secondary factors. These included:

  • whether the one performing services is engaged in a distinct occupation or business;
  • the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision;
  • the skill required in the particular occupation;
  • whether the principal or the worker supplies the instrumentalities, tools, and place of work for the person doing the work;
  • the length of time for which the services are to be performed;
  • the method of payment, whether by the time or by the job;
  • whether or not the work is a part of theregular business of the principal; and
  • whether or not the parties believe they are creating the relationship of employer-employee.

Not content with just those factors, the court looked to California law and found still others, such as

(i) the alleged employee’s opportunity for profit or loss depending on his or her managerial skill;

(j) the alleged employee’s investment in equipment or materials required for his or her task, or his or her employment of helpers;

(k) whether the service rendered requires a special skill;

(l) the degree of permanence of the working relationship; and

(m) whether the service rendered is an integral part of the alleged employer’s business.

The court noted that these 13 tests had to be applied “flexibly” and ultimately concluded that a question of fact existed and that the matter would need to be resolved by a jury. The court did note that these tests were of questionable utility and conceded that many might “arguably . . . appear outmoded in this context,” but refused to take that into account in its analysis.

Six months later, the court issued its decision on certification. The decision is 68 pages long and involved a fairly fact-intensive inquiry under each of the 13 factors cited above. Without recounting that lengthy analysis, there are several important points.

First, the case is limited to California Uber drivers and claims under California law.

Second, during the course of the case, Uber changed its driver agreements to take advantage of the decision in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), including a class action waiver. (The court’s opinion makes it clear that it disapproves of the change.) This change likely lowered the number of class members significantly.

Third, the court’s class definition narrowed the class in several respects, including excluding drivers who had not worked individually under their own name.

As to the court’s analysis of the class issues themselves, the court certified the claims under Rule 23(b)(3), and its opinion focuses, appropriately, on the issue of predominance. In doing so, the court was largely dismissive of Uber’s arguments, finding in some cases that its defenses applied class-wide (such as the fact that drivers set their own schedules, set their own routes, can work for others, and use their own vehicles). The court gave credit to five declarations from the class on behalf of the plaintiffs, but refused to give any weight to 400 declarations from Uber on the grounds, among others, that the number was allegedly insufficient.

Much of the alleged tip claim appears to be one of semantics. Uber’s website tells passengers that there is no need to tip, as any tip is “included” in the price. Uber simply pays drivers about 80 percent of what it receives from the passengers without breaking out a specific tip amount. The court almost sarcastically finds even though Uber never really took out a tip, its advertising suggests that it did, and since it never paid a tip it had never really collected, this constituted a common question of fact that binds the class. This seems to be the court’s way of trying to find a class-wide issue that might better stand up on appeal.

Uber will, of course, have a right to seek a Rule 23(f) discretionary appeal and will likely do so. Irrespective of what the Ninth Circuit may do, the issue is novel enough, perhaps, to warrant Supreme Court review. What is clear, however, even by the court’s own concession, is that the rules it applied may be inappropriate for the shared economy. Given that uncertainty, those with novel business models might take a page out of Uber’s book and adopt arbitration agreements with class waivers to limit the risk of litigation and attendant cost and publicity.

The bottom line: A district court has indeed certified a class alleging misclassification against Uber, but the decision is highly fact-specific, relies on California law provisions that won’t apply nationwide, and is already being eclipsed by contract changes.