In a closely-watched decision involving a challenge to the business model used by ride-hailing company Uber Technologies, Inc., a California federal judge agreed to certify a class of California drivers who claim to have been misclassified as independent contractors instead of employees.  On September 1, 2015, in O’Connor, et al. v. Uber Technologies Inc., et al., Case No. 13-cv-3826, U.S. District Judge Edward M. Chen of the U.S. District Court for the Northern District of California determined that all Uber drivers in California who did not previously waive their right to participate in class action arbitration could continue to bring their claims against the company on a class-wide basis.

The Uber decision demonstrates that companies must remain cognizant of how they classify workers in order to avoid similar costly and time-consuming class action cases.  Approximately 53 million Americans – or one in every three U.S. workers – now works in a capacity categorized as “freelance” or “independent contractor,” according to the non-profit organization Freelancers Union.  Opponents have pushed for enhanced protections for this expanding pool of workers, who do not generally earn benefits for health care, retirement, workers’ compensation or Social Security, among others. 

Uber is not alone in facing such scrutiny.  In recent years, the U.S. Department of Labor and state workforce agencies have investigated hundreds of businesses that allegedly were misclassifying employees as independent contractors.  Some notable cases include enforcement activities against a cable company for misclassifying cable installers, a telemarketing company for misclassifying telemarketers and failing to pay them overtime compensation, a drilling rig company for misclassifying crane operators, a janitorial service subcontractor and its payroll services company for misclassifying custodians, and an Internet information provider for misclassifying agents who answered text messages from website users.

The Uber decision has potential ramifications for any company that relies on engaging independent contractors as part of its business model – including a majority of start-ups trying to succeed in the competitive technology field by relying on independent contractors as a means of lowering their overall costs.  One possible way for a company to avoid a potential class action of the kind filed against Uber is by utilizing contractual clauses that limit the resolution of disputes with independent contractors to arbitration proceedings that exclude class actions. 

Click here to read the Uber class certification decision.

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