The core business models of both Uber and Lyft have just been turned over to two separate California juries. These groups of randomly selected citizens will determine whether the drivers for both companies have been properly classified as independent contractors, or whether both companies owe potentially millions of dollars in fines and penalties for having failed to treat their drivers as employees.
Can you think of a scarier thought? Well, of course you can, but stay with me here: The legitimacy of the entire business model for these companies is going to be determined by a handful of jurors with presumably no legal or business background. The two federal judges who were asked to decide these issues both decided that they could not decide.
The independent contractor sandbox is a dangerous place to play.
On March 11, 2015, two California federal judges, on the same day, issued opinions finding that the proper classification of Uber drivers and Lyft drivers under the California Labor Code could not be determined by the court through the summary judgment process, but instead would have to be decided through jury trials. (Order denying Lyft. Order denying Uber.) Both judges concluded that the legal test under California law for determining whether someone is properly classified as an independent contractor or should instead be deemed an employee is well settled, but the facts that play into that analysis were in dispute. Factual disputes, the judges each ruled, had to be determined by juries, not by judges. The ride-sharing services’ motions for summary judgment in each case were therefore denied. Next stop, trial.
Both judges criticized the current legal test as not being appropriate for the modern, technology-driven economy. The binary choice of classifying workers as either “employees” or “independent contractors” might no longer be sufficient, the judges mused. But both judges also concluded that the California legislature, not the courts, would be the appropriate entity to make any changes to the law. (Both judges drew this conclusion after citing extensively to the legal standards which have been written by the California courts, not by the legislature.)
The business implications of allowing juries to decide these classification issues is staggering. On a legal issue that is mired in confusion already, more confusion will follow. Because the outcome of these trials will be simple jury verdicts, not lengthy judicial explanations, these trials will yield no written opinions or guidelines to explain what factors were most determinative, what facts weighed one way or the other, or what practices other companies can safely rely upon when determining how to classify their drivers in the future. Moreover, the two juries could easily reach opposite conclusions, finding the drivers of one ride service to be employees and the other to be contractors. These risks will not only vex Uber and Lyft, but will likely dog other companies that try to make better use of technology or attempt a novel business model.
We have blogged numerous times about the minefield of conflicting and overlapping laws that govern whether a worker has been properly classified as an independent contractor or should have been deemed an employee. If the trend is going to shift toward having juries make these determinations, rather than judges, businesses will be even further handicapped in their ability to follow the law when classifying workers.
The Bottom Line: Business models that rely on an independent contractor model are already under heavy attack in the courts. If juries are going to be deciding worker classification issues instead of judges, the ability of companies to follow the law is going to become harder, not easier.