O'Connor v. Uber Technologies, Inc.[1] Douglas O'Connor filed a class action lawsuit against Uber Technologies, Inc. that may include as many as 160,000 drivers in California who have driven for Uber since 2009. The plaintiff drivers allege that Uber misclassified them as independent contractors and that, as employees, they are entitled to reimbursement for their gas, insurance, and maintenance expenses to their vehicles as drivers for Uber. The plaintiffs also allege that Uber owes them tips that customers have paid Uber that Uber has not passed on to the drivers. Uber classifies its drivers as independent contractors. All Uber drivers provide their own vehicles. Based on their availability and preferences, they decide how often and when to drive for Uber. The company does not control any of its drivers' schedules all Uber drivers are free to work as much or as little as they like so long as UberBlack drivers give at least one ride every thirty days, and UberX drivers give at least one ride every 180 days. Uber does not set schedules for drivers, dictate the routes they drive, or require them to log a minimum number of rides or time into the Uber App that is used to arrange rides for customers. Uber sets the fares charged to Uber customers, which results in Uber drivers being paid on a piecerate basis[2] when they take a job. Drivers do not negotiate fares or their compensation from Uber and the company raises or lowers prices unilaterally without input from its drivers. Uber fares include a tip, although the company claims it never actually calculates a tip. It admits, however, that it has not segregated tips from the rest of the fare and that it does not transfer any of these tips to its drivers. The plaintiff drivers claim that the failure to transfer tips to them violates California law. Before drivers can use the Uber App and drive for the company, they are given training materials and must attend training, which the company calls "onboarding." Uber maintains the right to monitor and enforce its drivers' compliance with current company requirements, such as not permitting papers in the visor, insisting that drivers be clean, and insisting that the car's rims are spotless. Uber also collects "extensive performance data regarding all of its drivers, and asks riders to rank all drivers' performance after each ride on a onetofive scale" and imposes "a minimum starrating drivers must maintain to continue receiving access" to the Uber application. Drivers who do not meet Uber's standards receive performance warnings and may be terminated for misconduct or for substandard performance ratings by customers. Uber also retains the right to discharge drivers without cause at any time. Writing Assignment: Assume that you are the judge deciding this case. You will analyze the facts in light of the legal rules we have examined in the Alexander v FedEx Ground Package System and the Metroville Strip Club cases. Explain your legal reasoning and conclusion by following the instructions below. General Instructions: You are to write paragraph analyzing the question of whether Uber drivers are employees or independent contractors under the meaning of the Fair Labor Standards Act. To help you identify and apply the appropriate legal rule(s) to this issue, you have been given three primary source documents: the Department of Labor Guidelines (Interpretation 20151), IRS Guidelines (Employer's Supplemental Tax Guide 15A), and the Eleventh Circuit's opinion in Scantland v. Jeffry Knight, Inc. (2013). Your paper should be in memo form, singlespaced and written in clear, articulate paragraphs, with headings, topic sentences and supporting text. Make sure that you use Spell Check, Grammar Check and make sure the work you submit is your own. Introduction (5 Lines)Introduce your reader to the problem and provide your reader with background information. To help you craft a strong introduction, make sure that it answers the following questions: Who are the plaintiffs? Who is the defendant? What is the nature of defendant's business? Where are the parties located? Use the IRAC model to organize and structure the rest of your paper. ( 6 to 7 lines) : What is the issue you are being asked to decide? ( About 15 lines): You have been given three documents to help you identify and explain the rule you believe governs this case. In this section of the paper, explain the legal standard for properly classifying employees under the Fair Labor Standard Act, the Department of Labor Guidelines, the IRS Guidelines, and the Scantland opinion. Application (this is the longest part of your paper): Apply the legal rule(s) you have identified to the facts of the case. Do the Uber facts meet the requirements for an employee as set out by the applicable rule(s) or is the company correct in classifying drivers as independent contractors? Conclusion (6 to 7 lines) If you were deciding the case, would you find for the Uber drivers or the company? Why? Implications of the case (1-2 final paragraphs): Why is this case significant to business and to workers? Why is it significant to the ondemand business sector that has been a growing segment of the economy? If ondemand drivers are classified as employees, what would be the impact on business? Conversely, if ondemand drivers are classified as independent contractors, what would be the impact on drivers in terms of employment benefits and the application of employment law? Does this case also raise ethical issues and, if so, what are they? Worker Classification Assignment: Reference Case Scantland v. Knight (11th Cir. 2013)1 The plaintiffs . . . are current and former technicians who installed and repaired cable, internet, and digital phone services for defendant Jeffry Knight, Inc. (Knight), an installation and repair service contractor for the cable company Bright House Networks (BHN) in Florida. Plaintiffs appeal the district court's order on summary judgment holding that they were independent contractorsnot employeesand therefore not entitled to overtime and minimum wage protections afforded by the Fair Labor Standards Act (FLSA or Act), 29 U.S.C. 201 et seq. . . . [W]e conclude that the district court erred in this determination. . . . The FLSA's overtime and minimum wage protections . . . extend only to \"employees,\" a term given rough outline by a series of broad definitions in the Act. An \"employee\" is any individual employed by an employer. . . . The term \"employ\" \"includes to suffer or permit to work.\" These definitions are intended to be \"comprehensive enough\" to include \"working relationships, which prior to this Act, were not deemed to fall within an employer-employee category.\" These \"broad\" definitions do not, however, bring \"independent contractors\" within the FLSA's ambit. To determine whether an individual falls into the category of covered "employee" or exempted "independent contractor," courts look to the "economic reality" of the relationship between the alleged employee and alleged employer and whether that relationship demonstrates dependence. . . . . This inquiry is not governed by the "label" put on the relationship by the parties or the contract controlling that relationship, but rather focuses on whether "the work done, in its essence, follows the usual path of an employee.\" . . . Both parties . . . rely on the following six factors, . . . used as guides in applying the economic reality test: (1) the nature and degree of the alleged employer's control as to the manner in which the work is to be performed; (2) the alleged employee's opportunity for profit or loss depending upon his managerial skill; (3) the alleged employee's investment in equipment or materials required for his task, or his employment of workers; (4) whether the service rendered requires a special skill; 1 Scantland v Jeffry Knight, Inc., 721 F.3d 1308 (11th Cir. 2013). 1 (5) the degree of permanency and duration of the working relationship; (6) the extent to which the service rendered is an integral part of the alleged employer's business. . . . No one of these considerations can become the final determinant, nor can the collective answers to all of the inquiries produce a resolution which submerges consideration of the dominant factoreconomic dependence. . . . [T]hese six factors are not exclusive and no single factor is dominant. We view the . . . facts relevant to each factor through the lens of \"economic dependence\" and whether they are more analogous to the \"usual path\" of an employee or an independent contractor. . . . A. Control The first factor considers the nature and degree of the alleged employer's control as to the manner in which the work is to be performed. . . . The facts . . . indicate that Knight exercised significant control over plaintiffs such that they did not stand as \"separate economic entities\" who were \"in business for themselves.\" Technicians were required to report to a Knight facility by 7:00 to 7:15 each morning. Technicians would turn in equipment from the previous day and submit their work orders, which included the billing codes that determined their pay for particular jobs. These billing codes were set by Knight, and managers could unilaterally change the codes that technicians reported, thereby reducing a technician's pay. Plaintiffs would also receive a \"route\" detailing the current day's work orders, which were generally assigned in two-hour timeslots. Though plaintiffs' \"Independent Contractor Service Agreements\" provided that they could \"decline any work assignments,\" plaintiffs testified that they could not reject a route or a work order within their route without threat of termination or being refused work in the following days. Thus, while a technician might consider a specific route or work order unprofitable, because, for example, it was low-paying or far away, plaintiffs had no power to decline the assignment. . . . Plaintiffs could, according to their contract, employ others to help them, but any such \"employees\" had to be technicians already engaged by Knight, and were therefore bound by Knight's policies. . . . Plaintiffs were subject to meaningful supervision and monitoring by Knight. Technicians routinely communicated with dispatch during the day and were required to log in and out of Work Force Managementa service on their cellular phones that they paid for via payroll deductionsto indicate when they arrived on a job, when they completed a job, and what their estimated time of arrival was for their next job. . . . 2 Plaintiff technicians worked five to seven days a week; some were required to work six days a week and sometimes seven days a week because of a requirement that they work rotating Sundays. Plaintiffs regularly worked more than forty hours a week. Technicians either had to inform their supervisors that they would be taking time off or request time off in advance, sometimes in writing. In sum, Knight controlled what jobs plaintiffs did, how much they were paid, how many hours they worked, how many days they worked, their daily work schedule, whether they could work for others, whether they could earn additional income from customers, and closely monitored the quality of their work. . . . Assuming factual inferences in favor of plaintiffs, this factor points strongly toward employee status. B. Opportunity for Profit or Loss The second factor considers the alleged employee's opportunity for profit or loss depending upon his managerial skill. . . . [P]laintiff's opportunity for profit or loss depended more upon Knight's provision of work orders and technicians' own technical skill and efficiency than their managerial skill. . . . Plaintiffs' opportunity for profit was largely limited to their ability to complete more jobs than assigned, which is analogous to an employee's ability to take on overtime work or an efficient piece-rate worker's ability to produce more pieces. An individual's ability to earn more by being more technically proficient is unrelated to an individual's ability to earn or lose profit via his managerial skill, and it does not indicate that he operates his own business. . . . Technicians could not negotiate or otherwise determine the rates they were paid for jobs. . . . Plaintiffs' ability to earn additional income through their own initiative was limited. . . . Plaintiffs could not sell non-BHN services to customers nor work for other companies because of either a flat prohibition or because the schedules demanded by Knight prevented them from pursuing other work. Plaintiffs were able to exert some control over their opportunity for profits by pairing up to complete jobs and trading jobs among each other, but this ability was ultimately limited by the number and types of jobs Knight assigned them and whether Knight's assigned schedule permitted them time to do so. . . . [T]his factor suggests economic dependence, and points strongly toward employee status. 3 C. Investment in Equipment or Materials The third factor considers the alleged employee's investment in equipment or materials required for his task, or his employment of workers. This factor favors independent contractor status, although it does so only weakly. . . . Technicians are required to have vehicles, auto insurance, tools and safety equipment, and commercial general liability insurance. . . . [E]ven though a technician who initially bought his tools from Knight and paid for them via withholdings has some economic independence when the tools are paid for, it is analogous to the independence any employee has who has gained experience and the ability to market himself to competing employers. . . . D. Special Skill The fourth factor considers whether the service rendered requires a special skill. This factor favors independent contractor status, but it does so only weakly. Plaintiffs were clearly skilled workers. . . . Plaintiffs were . . . dependent upon Knight to equip them with the skills necessary to do their jobs. The skills attained by technicians point toward a degree of economic independence insofar as a highly trained technician could gain economic independence by the ability to market his skills to a competing employer. This does not, however, significantly distinguish such a worker from the \"usual path of an employee.\" To the extent that this factor favors independent contractor status, it does so weakly. . . . E. Permanency and Duration The fifth factor considers the degree of permanency and duration of the working relationship. This factor points strongly toward employee status. Named plaintiffs worked for Knight for an average of more than five years. Their contracts were for year terms, were automatically renewed, and were terminable only with thirty days' notice. These facts suggest substantial permanence of relationship. . . . F. Integral Part of Alleged Employer's Business The sixth and final factor considers the extent to which the service rendered is an integral part of the alleged employer's business. This factor weighs clearly and strongly toward employee status. Approximately two-thirds of Knight's business consists of the telecommunications installation and repair services it performs for BHN. . . . 4 The integral role played by technicians in Knight's business shows that the arrangement follows more closely that of an employer-employee relationship than an independent contractor dynamic. . . . Assuming factual inferences in favor of plaintiffs, this factor points strongly toward employee status. G. Weighing the Factors When all the facts are viewed in the light most favorable to the plaintiffs and all reasonable inferences are drawn in their favor, four of the six factors weigh strongly in favor of employee status. The two factors that do notinvestment and special skillweigh only very slightly toward independent contractor status. Neither contributes in any significant manner to the workers' economic independence or to distinguishing the workers from the \"usual path of an employee.\" Thus, we conclude that, viewing the facts most favorably toward plaintiffs and with all justifiable inferences drawn in their favor, plaintiffs were \"employees\"not \"independent contractors\"under the FLSA. 5 EXCERPTS FROM FLSA, DOL INTERPRETATION NO. 2015-1 AND IRS GUIDELINES FAIR LABOR STANDARDS ACT, 29 U.S.C. 203 - Definitions1 (d) \"Employer\" includes any person acting directly or indirectly in the interest of an employer in relation to an employee and includes a public agency, but does not include any labor organization (other than when acting as an employer) or anyone acting in the capacity of officer or agent of such labor organization. (e)(1) Except as provided in paragraphs (2), (3), and (4), the term \"employee\" means any individual employed by an employer. (g) \"Employ\" includes to suffer or permit to work. DEPARTMENT OF LABOR: Administrator's Interpretation No. 2015-1 (July 15, 2015)2 In order to make the determination whether a worker is an employee or an independent contractor under the FLSA, courts use the multi-factorial \"economic realities\" test, which focuses on whether the worker is economically dependent on the employer or in business for him or herself . . . . The distinction between workers who are economically dependent on employers and the narrower subset of workers who are truly independent businesspersons must not be eclipsed by a mechanical application of the economic realities test . . . . Each factor of the economic realities test is discussed below . . . . A. Is the Work an Integral Part of the Employer's Business? If the work performed by a worker is integral to the employer's business, it is more likely that the worker is economically dependent on the employer . . . . Work can be integral to a business even if the work is just one component of the business and/or is performed by hundreds or thousands of other workers. 1 29 U.S.C. 203 (2014). 2 Weil, supra note 6 (emphasis added) (citations omitted). Example: For a construction company that frames residential homes, carpenters are integral to the employer's business because the company is in business to frame homes, and carpentry is an integral part of providing that service. B. Does the Worker's Managerial Skill Affect the Worker's Opportunity for Profit or Loss? In considering whether a worker has an opportunity for profit or loss, the focus is whether the worker's managerial skill can affect his or her profit or loss. A worker in business for him or herself faces the possibility to not only make a profit, but also to experience a loss. . . . [A] worker's decisions to hire others, purchase materials and equipment, advertise, rent space, and manage time tables may reflect managerial skills that will affect his or her opportunity for profit or loss beyond a current job. . . . [T]he worker's ability to work more hours and the amount of work available from the employer have nothing to do with the worker's managerial skill and do little to separate employees from independent contractors - both of who are likely to earn more if they work more and if there is more work available. Example: A worker provides cleaning services for corporate clients. The worker performs assignments only as determined by a cleaning company; he does not independently schedule assignments, solicit additional work from other clients, advertise his services, or endeavor to reduce costs. . . . [T]he worker does not exercise managerial skill that affects his profit or loss. Rather, his earnings may fluctuate based on the work available . . . . This lack of managerial skill is indicative of an employment relationship between the worker and the cleaning company. In contrast, a worker provides cleaning services for corporate clients, produces advertising, negotiates contracts, decides which jobs to perform and when to perform them, decides to hire helpers to assist with the work, and recruits new clients. This worker exercises managerial skill that affects his opportunity for profit and loss, which is indicative of an independent contractor. C. How Does the Worker's Relative Investment Compare to the Employer's Investment? The worker should make some investment (and therefore undertake at least some risk for a loss) in order for there to be an indication that he or she is an independent business. Even if the worker has made an investment it should not be considered in isolation; it is the relative investments that matter. . . . For example, investing in tools and equipment is not necessarily a business investment or a capital expenditure that indicates that the worker is an independent contractor. Instead the tools and equipment may simply be necessary to perform the specific work for the employer. Even if the investment is possibly a business investment, the worker's investment must be significant in nature and magnitude relative to the employer's investment in its overall business to indicate that the worker is an independent businessperson. D. Does the Work Performed Require Special Skill and Initiative? A worker's business skills, judgment, and initiative, not his or her technical skills, will aid in determining whether the worker is economically independent. . . . The technical skills of cable installers, carpenters, construction workers, and electricians, for example, even assuming that they are special, are not themselves indicative of any independence or business initiative. . . . Only carpenters, construction workers, electricians and other workers who operate as independent businesses, as opposed to being economically dependent on their employer, are independent contractors. E. Is the Relationship between the Worker and the Employer Permanent or Indefinite? Permanency or indefiniteness in the worker's relationship with the employer suggests that the worker is an employee. . . . However, a lack of permanence or indefiniteness does not automatically suggest an independent contractor relationship, and the reason for the lack of permanence or indefiniteness should be carefully reviewed to determine if the reason is indicative of the worker's running an independent business. . . . The key is whether the lack of permanence or indefiniteness is due to \"operational characteristics intrinsic to the industry\" (for example, employers who hire part-time workers or use staffing agencies) or the worker's \"own business initiative. . . .\" A worker's lack of a permanent or indefinite relationship with an employer is indicative of independent contractor status if it results from the worker's own independent business initiative. F. What is the Nature and Degree of the Employer's Control? The worker must control meaningful aspects of the work performed such that it is possible to view the worker as a person conducting his or her own business. . . . And the worker's control over meaningful aspects of the work must be more than theoretical - the worker must actually exercise it. . . . For example, an employer's lack of control over workers is not particularly telling if the workers work from home or offsite. Technological advances and enhanced monitoring mechanisms may encourage companies to engage workers not as employees yet maintain stringent control over aspects of the workers' jobs, from their schedules, to the way that they dress, to the tasks that they carry out. [T]he nature and degree of the employer's control must be examined as part of determining the ultimate question whether the worker is economically dependent on the employer. Conclusion: In sum, most workers are employees under the FLSA's broad definitions. . . . The factors should not be analyzed mechanically or in a vacuum, and no single factor, including control, should be over-emphasized. Instead, each factor should be considered in light of the ultimate determination of whether the worker is really in business for him or herself (and thus is an independent contractor) or is economically dependent on the employer (and thus is its employee). IRS GUIDELINES: 3 2. Employee or Independent Contractor? To determine whether an individual is an employee or an independent contractor under the common law, the relationship of the worker and the business must be examined. . . . Facts that 3 EMPLOYER'S SUPPLEMENTAL TAX GUIDE, supra note 7. provide evidence of the degree of control and independence fall into three categories: behavioral control, financial control, and the type of relationship of the parties. Behavioral control. Facts that show whether the business has a right to direct and control how the worker does the task for which the worker is hired include the type and degree of: Instructions that the business gives to the worker. An employee is generally subject to the business' instructions about when, where, and how to work. All of the following are examples of types of instructions about how to do work. When and where to do the work. What tools or equipment to use. What workers to hire or to assist with the work. Where to purchase supplies and services. What work must be performed by a specified individual. What order or sequence to follow. . . . The key consideration is whether the business has retained the right to control the details of a worker's performance or instead has given up that right. Training that the business gives to the worker. An employee may be trained to perform services in a particular manner. Independent contractors ordinarily use their own methods. Financial control. Facts that show whether the business has a right to control the business aspects of the worker's job include: The extent to which the worker has unreimbursed business expenses. Independent contractors are more likely to have unreimbursed expenses than are employees. Fixed ongoing costs that are incurred regardless of whether work is currently being performed are especially important. However, employees may also incur unreimbursed expenses in connection with the services that they perform for their employer. The extent of the worker's investment. An independent contractor often has a significant investment in the facilities or tools he or she uses in performing services for someone else. However, a significant investment is not necessary for independent contractor status. The extent to which the worker makes his or her services available to the relevant market. An independent contractor is generally free to seek out business opportunities. Independent contractors often advertise, maintain a visible business location, and are available to work in the relevant market. How the business pays the worker. An employee is generally guaranteed a regular wage amount for an hourly, weekly, or other period of time. This usually indicates that a worker is an employee, even when the wage or salary is supplemented by a commission. An independent contractor is often paid a flat fee or on a time and materials basis for the job. However, it is common in some professions, such as law, to pay independent contractors hourly. The extent to which the worker can realize a profit or loss. An independent contractor can make a profit or loss. Type of relationship. Facts that show the parties' type of relationship include: Written contracts describing the relationship the parties intended to create. Whether or not the business provides the worker with employee-type benefits, such as insurance, a pension plan, vacation pay, or sick pay. The permanency of the relationship. If you engage a worker with the expectation that the relationship will continue indefinitely, rather than for a specific project or period, this is generally considered evidence that your intent was to create an employer-employee relationship. The extent to which services performed by the worker are a key aspect of the regular business of the company. If a worker provides services that are a key aspect of your regular business activity, it is more likely that you will have the right to direct and control his or her activities. For example, if a law firm hires an attorney, it is likely that it will present the attorney's work as its own and would have the right to control or direct that work. This would indicate an employer-employee relationship