LT Pacific Law Group LLP

We previously reported on the lawsuits against Uber wherein the courts could have ruled on whether its drivers were independent contractors (as Uber contends) or employees.

A settlement agreement has been reached on these lawsuits (in California and Massachusetts) wherein Uber will pay as much as $100 million and agree to a few changes in its operations, including being more flexible about how many cancellations a driver can have in a period of time, agreeing to create drivers association, and allowing drivers to ask for tips.

The settlement is not finalized until it is approved by the courts.  If finalized, the settlement protects Uber’s business model of independent contractor drivers.  This would avoid dealing with all the issues employers, at least in California, deal with such as overtime, breaks, discrimination, harassment, and sick leave.  It also continues to allow drivers a measure of freedom to work when and for how long they want (subject to Uber’s existing driver policies).  The $100 million, if paid, would be distributed to the 385,000 drivers represented in the 2 lawsuits, so drivers should not expect to get rich from this settlement.  Not a bad deal for a company still looking to have an IPO in the future.

For more on this settlement, see these articles from the LA Times and the Verge.

Uber has gone from officially launching service in 2011 to being valued at up to $51 billion as of July 2015.  It is the most famous example of the growing number of companies that is part of the “sharing economy.”

However, Uber’s business model may change depending on the outcome of some ongoing lawsuits that involve the determination of whether Uber drivers are employees or independent contractors.

In California, the determination of whether a worker is an employee or an independent contractor is a two-stage analysis.  The first stage is whether there is evidence a worker provided services for an employer.  The second stage is whether the employer can prove the worker is an independent contractor.   A variety of factors help determine whether a worker is an independent contractor, the most important of which is the employer’s right to control work details or whether the employer retains all necessary control over the worker’s performance.  The right to control is more important than how much control an employer actually exercises.   An employer’s right to discharge at will, without cause, is strong evidence in support of an employment relationship.

Other factors include whether the one performing services is engaged in a distinct occupation or business; whether the occupation is usually done under the direction of a principal or by a specialist without supervision; the skill required in the occupation; whether the principal or worker supplies the tools and place of work; the length of time the services are to be performed; whether payment is by time or by the job; whether the work is part of the regular business of the principal; and whether the parties believe they are employer and employee.

In the pending O’Connor class action case against Uber, the court found Uber is a transportation company for which their drivers provide services for Uber.  Uber sets the fares it charges riders unilaterally.  Uber prohibits its drivers from soliciting rides from User riders outside the Uber app.  Uber exercises substantial control over the qualification and selection of its drivers.  Uber regularly terminates the accounts of drivers who do not perform up to Uber’s standards.  Uber receives a percentage of each fare its drivers earn.  Based on this, the court ruled the question of whether an Uber driver is an employee or independent contractor is one that must be decided by a jury.

For more on this case, see this website operated by the attorneys for the Plaintiffs in the O’Connor case, a response from Uber to recent court rulings on lawsuits against Uber, and this Wired Magazine article on the Uber lawsuits.

Finally, this is information from the California Department of Industrial Relations on how to tell if you are an employee or independent contractor.

California’s minimum wage is currently $9 per hour and will increase to $10 per hour on January 1, 2016.  Several California cities (such as the City and County of Los Angeles, San Francisco, and Oakland) have recently passed laws to eventually increase the minimum wage to as much as $15 per hour.

The rising minimum wages are creating considerable anxiety in the restaurant industry, as tipped workers (many of whom already earn more than $15 per hour) have thus far not been exempt from the new minimum wage laws.  Therefore, a tipped worker who is currently paid the minimum wage plus tips that results in total pay of over $15 per hour will eventually have to be paid the prevailing minimum wage plus tips, assuming tipping is still in fashion by that point.

Therefore, now is a good time to review California law on tipping.  The California Labor Commissioner has a good description of tipping law, but here are the highlights:

A tip is considered money paid to the employee, not the employer.  However, a mandatory service charge is considered money paid to the employer.  The employer then has the discretion to choose to distribute some or all of the service charge to the employees.

An employer cannot reduce wages based on tips received by that employee.  Therefore, an employer cannot fulfill payment of a minimum wage by paying a minimum wage but crediting/reducing the wage by the amount of tips received by that employee.

An employer can require tips to be pooled or shared with other employees who provide “direct table service” or who are in the “chain of service.”  This can include busboys and bartenders.  In general, supervisors or mangers or employers are not supposed to share in tip pooling.  However, in one situation a California court has approved of shift supervisors receiving part of a tip pool where their duties primarily consist of directly serving customers and tips are given to a collective tip jar where it was expected that all employees who served customers would share the tips.