UberSuccessful Digital Business Model May Crash If Florida Court Classifies Drivers as Employees

by Rumberger Kirk & Caldwell

Rumberger Kirk & Caldwell

It’s no secret that the multi-billion dollar gig-economy app company has faced its share of speed bumps, roadblocks, and controversies the last several years. As a result of issues with local regulatory traffic laws, rider complaints against drivers for assault and rape, and a sexual harassment scandal, Uber is no stranger to the legal system. But those issues haven’t stopped investment bankers and shareholders from valuing the company at close to $60 billion. However, more recent lawsuits by drivers claiming the ride-sharing giant misclassified them as independent contractors, rather than employees, may threaten the very existence of digitally-based companies such as Uber, Lyft, and Postmates.

The incredibly swift success Uber has experienced is largely attributed to its digital business model, enabling the company to maintain minimal operating costs. By classifying drivers as independent contractors instead of employees, Uber saves millions by not having to pay drivers unemployment benefits, a guaranteed minimum wage, workers’ compensation, sick days, or reimbursement for driving expenses such as mileage, tolls, gasoline, insurance, phone data usage, and vehicle maintenance costs. That’s good for Uber, but some drivers have had enough and are turning to the legal system so they can receive the traditional benefits that come with being classified as an employee.

Not Eligible for Unemployment Benefits

In February, Florida’s Third District Court of Appeal found that an Uber driver was not an employee for purposes of unemployment benefits. In McGillis v. Dep’t of Econ. Opportunity, 210 So. 3d 220 (Fla. 3d DCA 2017), the Department of Revenue had initially found that McGillis was an employee under Fla. Stat. § 443.1216, but the Department of Economic Opportunity reversed the decision because the services agreement governing the parties’ relationship classified Uber drivers as independent contractors, and the parties’ actual practice reflected that agreement. Id. at 225. The appellate court agreed with this analysis. Id. In Florida, courts first look at the parties’ agreement to determine whether an individual is an employee or independent contractor. Id. at 224.

Next, the appellate court considered ten factors outlined in the Restatement (Second) of Agency § 220, with control being the most important factor. Id. In finding Uber drivers were not employees, the appellate court reasoned that drivers are essentially self-employed business owners because they control the when, where, with whom, and how to accept and perform ride-sharing requests. The court found that not only did Uber not prohibit drivers from engaging in other employment even if that other employment was with direct competitors, but Uber also did not supply drivers with the essential equipment required to perform their job (aka vehicles) or provide direct supervision. Id. at 225-26.

Florida Proposed Bill May Remove Court’s Discretion

Uber’s judicial victory may soon get some legislative bolstering. A legislative bill is up for consideration by the Florida Senate that would remove the discretion courts presently enjoy in applying the ten-factor test to decide the classification of certain drivers as employees or independent contractors. Senate Bill 340 provides that a Transportation Network Companies (“TNC”) driver would be an independent contractor if four conditions are met: 1) the TNC does not unilaterally prescribe specific hours during which the TNC driver is required to be logged on to the TNC’s digital network; 2) the TNC allows the TNC driver to use digital networks from other TNCs; 3) the TNC does not prohibit the driver from engaging in any other occupation or business; and 4) the TNC and its driver agree in writing that the TNC driver is an independent contractor with respect to the TNC. If the bill passes and because Uber meets the conditions above, Uber’s drivers would be classified as independent contractors by Florida statute.

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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