Employee or dependent Contractor? The O'Conner vs Uber Hearing

The United States District Court of Northern California with Judge Edward M. Chen presiding  heard arguments Thursday, August 6, 2015, on O'Conner vs Uber.

There were two main issues involved: One – whether or not the plaintiffs were employees instead of independent contractors; Two – whether or not the plaintiffs represented Uber drivers as a class.

Although distinctions were drawn between the issues, they frequently overlapped, and both the attorneys and Judge Chen often addressed both questions simultaneously.

Uber was represented by attorney Theodore Boutrous who also represents Wall-Mart in a class action suit and is considered one to the top hired guns in the business.

The plaintiffs were represented by Harvard educated labor lawyer Shannon Liss-Riordan who specializes in defending the rights of low wage workers. Among her victories was a $14 million judgement against Starbucks for allowing supervisors to "share" worker's tips.

There is a great deal of case law concerning the differences between employees and independent contractors and both of the attorneys were well schooled in the subject. Most of their arguments were backed with quotes from legal precedents which sometimes made it difficult for laypersons like myself to follow.

However, the clarity with which the attorneys and Judge Chen expressed their ideas was a welcome change from the willful ignorance and partisanship that we've been witnessing at hearings of the California Public Utilities Commission (CPUC) and the State Legislature.

Judge Chen, in contrast, displayed no prejudices one way or the other, and had an expert's knowledge of the issues – as well he should since one of his own rulings was referenced by both attorneys as a precedent.

 The Dispute Includes the Following Arguments: 

One: Uber Drivers Want to be Independent Contractors.

Boutrous began with the kind of contrived, emotional argument that plays well at the CPUC. He he had a list of 400 Uber drivers who claimed that they wanted to be independent contractors, and chastised Liss–Riordan for not doing her job in responding to his list.

Liss-Riordan countered by saying that she had been contacted by 1,700 drivers who wanted to be part of the suit but she didn't think it was necessary to add them. She also said that 50 of the people on Boutrous' list had told her that they had misunderstood what the suit meant but they didn't want to take their names off the list for fear of reprisal.

In any case, Judge Chen wasn't impressed by Boutrous' ploy. The judge pointed out that the 400 people made up about two-tenths of one percent (1 in 400) of the 160,000 people who drive for Uber and added that "happy campers" often show up to defend companies in suits of this kind.

Boutrous then gave Chen of a dose Uber arrogance by criticizing the judge for "demeaning" the hard working 400 – never mind the other 159,600 not so happy campers that Boutrous wants to pretend don't exist.

Two: Whether or Not Uber Has the Power to Terminate Drivers Without Cause.

Boutrous argued that Uber had written 17 different versions of the contract since 2009 and the wording differed so much among the versions that no one contract could represent them all. Instead, he said that several individual trials would be necessary to determine the facts on a case by case basis.

Judge Chen said that he thought the differences between the contracts were really minor because Uber retained the power to terminate drivers at any time no matter what the specific wording of each contract actually was.

As a corollary, drivers could also quit Uber without consequence which would not be true in an independent contract between, say, a painter and the owner of a house. If either side would renege on such an agreement, the other party would usually be owed compensation.

Not mentioned (I believe) was the fact that there was no consequence to Uber for breaking the contract. The drivers couldn't collect unemployment, or sue if Uber failed to send them rides.

Three: Whether or Not Uber Controls Its Drivers in Other Ways.

Citing a precedent, Boutrous said that the right to terminate workers could not be the sole determining factor of whether or not a person was an independent contractor.

He then went on to say that Uber drivers are not scheduled, aren't told what to do or where to go, and can work whenever they want.

Liss-Riordan countered by saying that there were fourteen different points of control that determine whether a worker is an employee or not and that Uber exerted control in twelve of them including: using background checks for hiring, setting the percentage of payments that the drivers would receive, making the payments to drivers accounts, and using a 5 point rating system to fire drivers who didn't score high enough.

Judge Chen was also interested in the 5 point rating system. He had done research on it that showed that Uber's district managers determine the exact percentage that drivers need to maintain in order to keep their jobs. But, some version of the 5 point system is applied by the company throughout the country.

In San Francisco, for instance, drivers used to have to maintain a  4.7 rating but so many drivers had either been fired or quit that Uber recently lowered the standard to 4.4.

Also not mentioned was the fact that Uber will also fire drivers who do not take a high enough percentage of the rides sent to them.

Boutrous Scores.

Who Boutrous most reminds me of (with his hair-splitting and creation of pseudo issues) is Viola Davis in How To Get Away With Murder. Like Davis (a lawyer who apparently only defends murders), Boutrous has a culpable client (in this case a venture capitalized corporation guilty of using fake independent contractor status to control and exploit its workers far more than any employer could) so he needs to fabricate a defense. In order to do this, Boutrous uses the time honored technique of throwing stuff up against a wall to see what sticks.

What finally adhered was an argument that struck me as a little strange.

The Argument of the Thirty-Nine Business Owners

Boutrous said that 39 Uber drivers also ran their own businesses and added that they would quit if they were forced to become employees. As an example, Boutrous cited a man who was an Uber driver but also ran a limo business with twenty-six employees.

For some reason this impressed Judge Chen who said that these people clearly didn't fit the definition of employees.

I have to admit that I didn't follow his reasoning. What is the difference between the 39 Uber workers and people who are employed part time as: bookkeepers, bartenders, waiters, clerks, delivery people or telephone salespersons?

And, if these business owners want to quit so what? Using Judge Chen's arithmetic this equals two-100ths of one percent or (1 in 4,000) out of 160,000 Uber workers.

It's difficult, if not impossible, to see how this would damage Uber's profitability (which seems to be of paramount importance to all branches of government). And, since this a part time job for people who own businesses, it's also hard to understand how it would damage them very much – especially since they apparently can afford to quit if they don't like how they are classified?

Class Action vs Jury Trials.

One of the main issues was whether or not Judge Chen should rule on the whether not these trials should be a class action.

Boutrous badly wanted separate jury trials instead of having Chen make a ruling. The venture capitalized corporation's attorney said that a series of jury trials would help form a body of work  upon which a future precedent could be more firmly set.

Liss-Riordan, on the other hand, wanted Judge Chen himself to make a class action ruling before the individual trials took place. She said that under current circumstances (with the independent contract in force for Uber) drivers in favor of employee status would be afraid to testify.

Judge Chen said that he would make a ruling on the issues sometime in the future and in the meantime the attorneys should prepare themselves for the trials.

Notes

1. Boutrous gave a demonstration of why he really wants jury trials immediatley after the hearing when he trotted out a line of Uber drivers who, for the benefit of the press, all said they wanted to be independent contractors . The Uber Attorney clearly thinks that juries won't be as sharp as Judge Chen and thus won't realize how few drivers Boutrous' parade really represents.

Liss-Riordan might need to come with a parade of her own to fight this ploy, possibly from drivers who have already been fired by Uber.

2. Uber's ability to control the narrative

A. Boutrous did succeed in turning the issue into a discussion of part time instead of full workers.

Supposedly (any figures from Uber have to be taken with a bucket of salt), 50% of Uber drivers work 10 hours or less and 50% work 30 hours or more. Nobody mentioned the thousands of drivers who have bought cars with Uber's usurious financing (23% interest last I heard) and are working 60 hours a week to make it worthwhile.

Whatever the exact figures it's clear that most of Uber's earning come from full time, not part time, drivers. It's simple arithmetic. Using Uber's own dubious figures: if half the drivers are full time and half are part time, three-fourths of Uber's money would come from the full time workers.

(50 drivers at 30 hours per week = 1500 hpw and 50 drivers at 10 hpw = 500; 1500+500 = 2000;1500 divided by 2000 = 75%)

B. The issue has thus been turned upside down. The real focus should be on the rights of full time workers who need to support themselves and raise families, not so much on people earning a little on the side.

3. There was a subtext to this hearing (as there was to hearings at the CPUC and the State Legislature) that the government and the courts (for some unstated reason) have a duty to, not only keep Uber in business, but to guarantee their profitability. This is kind of a libertarian/techie version of the old saying, "what's good for General Motors is good for the world."

Indeed, Uber has constantly argued that they would lose their ability to compete or (horror of horrors) innovate if they were forced to: fully insure their drivers and customers, fingerprint their driver applicants, pay outside mechanics to inspect their vehicles, train their drivers, etc – in short, all the things that legitimate transportation business do as a matter of course.

In this case,  Uber claims that correctly classifying their drivers as employees would  force Uber to pay unemployment taxes, workers compensation and so forth which would undermine their ability to compete.

Complete with whom?

Taxis.

And, how are they competing now?

In San Francisco, Uber is currently charging 40% less than taxis, except of course for "surge pricing"(i.e. price gouging) hours.

Uber's is able to "compete" in this manner because they aren't paying for fingerprinting or mechanically inspecting their vehicles or any of the other things mentioned above. They are also able to "compete" in this manner because of the money they save by falsely labelling their employees as independent contractors.

Uber has been asking the lawmakers, and now the courts, to weaken regulations, not so that Uber can "complete"  with the taxis, but so that they can continue to undercut, destroy and finally replace the taxicab industry.

Indeed, the destruction of the taxi business is precisely what Uber's 50 billion dollar evaluation is really based upon. With taxicabs out of the way Uber can charge anything it wants while paying its drivers way less than they are now.

The question for the courts, then, is whether or not they should continue to weaken regulations that protect public safety and help workers earn a living wage in order to boost the profits of Uber's venture capitalists?