McDonald’s and Uber: Too Much Control Over Employees

Pessin Katz Law, P.A.

There have been some seismic movements of late in the labor and employment field.  First, McDonald’s was found to be a “joint employer” with its franchisees by the National Labor Relations Board.  As widely reported, this could make the fast-food giant responsible for the working conditions at its franchised restaurants.  Second, the “car service” company, Uber Technologies, Inc., (“Uber”) is facing a class action lawsuit in the U.S. District Court for the Northern District of California (San Francisco Division) claiming that its drivers are its employees and that Uber has wrongfully retained a portion of the drivers’ tips.

McDonald’s has vowed to fight the finding of the NLRB as to its status as a “joint employer”, a decision largely based on the degree of control it exercises over its franchisees.  A large degree of control is essential to a successful franchise operation.  Yet, that very control is what persuaded the NLRB to take the “joint employer” position.  However, this is an argument and “fight” which has been carried to McDonald’s for years.  So, this is a case which we will leave for discussion when the outcome becomes final.  Suffice it to say that the ultimate outcome of the NLRB ruling and the expected appeals is one that will impact franchised businesses and their operators of all sizes.

Uber refers to itself as a “peer to peer” (“P2P”) business.  That means it puts customers and service providers together to receive services of the providers.  Uber accomplishes its provision of transportation service to consumers through a mobile phone application by which those needing transportation may set up an Uber account allowing them to summon a vehicle through the Company’s proprietary software (often a limousine or luxury SUV) so that they may be picked up from their present location and transported to their destination.  Uber drivers (“partner carriers”, according to the Company) also have an application which acts as a “taxicab meter”, and it also allows the driver to either accept or reject the “fare”.  The customer is notified of the fare in advance through the software. A rejection of the fare by the first contacted driver causes Uber to communicate with the next closest driver in the customer’s vicinity.  The customer receives information on the Uber driver coming for them and can track the driver’s progress on the customer’s mobile phone.  According to the lawsuit, filed by two Uber participating drivers on behalf of all Uber drivers, Uber advertises a flat rate for its service and that the driver’s tip is included in that flat rate.  The drivers contend that Uber exercises sufficient control over drivers allegedly by requiring that they follow rules regarding conduct with customers, vehicle cleanliness, and monitoring of the timeliness of pickup and delivery of customers.

In addition to the contention of the lawsuit that Uber drivers are really employees and not independent contractors, a claim is made that the Uber drivers do not receive all their tips, but that a portion of the tips included in Uber’s pricing is retained by the company.  According to the filed court documents, the inclusion of the tips in the fixed price discourages Uber customers from separately tipping the drivers.  Uber’s position is that it receives a “commission” for its service to the driver, collecting all of the charges for the trip and retaining twenty percent of the charges while remitting the balance to the driver.

Uber’s basic contention is that it is a P2P service and does not exercise the degree of control over drivers outlined in the lawsuit.  Uber drivers furnish their own vehicles to operate the service and bear the expense of such operations.  (Uber drivers are not “dedicated” to Uber.  In other words, they may be driving customers not connected with Uber and only take Uber customers when they have an opportunity to do so.  Uber does not require the drivers work exclusively for it, which would certainly make them “employees”.)  Under California law, such expenses, if incurred by employees for the benefit of their employers and are necessary for employees to perform their jobs, must be reimbursed to the employees.

Uber is immensely popular with young people who view its vehicles and operators as a “step up” from traditional taxi services. Drivers frequently dress and act much like “chauffeurs” as opposed to cab drivers.  However, taxi companies and regulators are unpersuaded by Uber’s argument that it is not a car service which must be regulated by the government.

On August 6, 2014, the Maryland Public Service Commission issued Order No. 86528 directing Uber to file an application for a motor carrier permit in order for Uber to continue its “UberBLACK” or “UberSUV” services in Maryland.  The Order affirms a Proposed Order in the case (Case No. 9325) even though Uber has filed an appeal of the Proposed Order.  In other words, the Commission has chosen to finalize its Order even though Uber’s appeal of the Proposed Order has not yet been heard by a judge.  Uber’s two basic contentions are that it does not own the vehicles that transport customers and that it is a technology company by virtue of the mobile phone application it has designed and employs leaving the Commission with no authority to regulate the Company.  As with the McDonald’s case, the Commission points to the amount of control Uber exercises over drivers through its policies, evaluations, and right to end the relationship as evidence of Uber being a “common carrier” under Maryland law.  The Order also acknowledges the technological aspect of Uber’s service and that the Commission’s regulations have failed to keep pace with peer to peer technologies which provide transportation services to consumers.  Consequently, the Commission’s Order directs its staff to draft such regulations.

Uber now operates in many countries worldwide and has raised over a billion dollars in investor capitol.  Those figures alone indicate a strong market for what it does.  Apparently, its business model has caught taxi operators “flat footed” and they are justifiably concerned about having a level playing field.  Forcing Uber into “motor carrier” status helps to level that field by requiring it to follow some sort of rate setting procedure and insuring that consumers are protected by proper rate setting and regulation. Uber’s adjustment of its rates during peak periods of demand for its services, a practice referred to as “surge pricing”, might become illegal under the Commission’s eventual regulations.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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