Limo Company Alleges Uber Illegally Saved $500 Million by Misclassifying Drivers as Independent Contractors
A limousine company recently filed a lawsuit against Uber in federal court alleging that Uber misclassified its drivers as independent contractors, to illegally obtain a competitive advantage over its law-abiding competitors (referring to taxi companies and livery services). The limo company argues that Uber’s misclassification scheme allows the ride-share company to avoid having to (1) pay workers at least minimum wage for all hours worked; (2) provide workers with meal and rest periods; (3) comply with overtime pay requirements; (4) pay unemployment insurance and workers’ compensation insurance premiums; and (5) remit payroll taxes to governmental agencies. The limo company estimates that this illegally saves Uber $500 million a year, which Uber used to price its rides far below the market rate.
The limo company based its argument on the California Supreme Court’s Dynamex decision, in which the Court adopted the “ABC test” for determining whether a hired worked is an independent contractor or an employee. At first glance, Dynamex’s ABC test appears to provide the limo company with a strong argument that Uber’s drivers were misclassified as independent contractors. For example, Uber requires drivers to display Uber’s logos on the driver’s vehicles, sets trip fares, and facilitates the payment process. In addition, Uber drivers appear to be integral to Uber’s business because Uber is a ride services company at its core. Finally, many Uber drivers only provide ride services through Uber and do not independently promote their own services outside of Uber.
Here is the rub, though: After the limo company filed its lawsuit against Uber, the Third District Court of Appeal decided Garcia v. Border Transportation Group, LLC, which held that the Dynamex ABC test only applies to claims based on the wage orders (e.g., minimum wage, unpaid overtime, meal and rest period violations). The limo company’s lawsuit is based on violations of California’s laws prohibiting unfair competition. If the federal court strictly applies the holding of Garcia, the limo company’s claims could be dismissed.
What This Means for Employers:
The limo company alleges Uber violated the wage orders, but its claims are ultimately based on unfair competition laws. Given the close relationship of the wage order allegations to the unfair competition claims, the federal court might be tempted to rely on Garcia’s rationale. On the other hand, the court might strictly apply Garcia and find that the Dynamex ABC test is not suited for cases alleging unfair competition claims. In any event, this lawsuit will likely provide significant insight into how courts will apply the Garcia decision. We will watching this lawsuit and reporting on any further developments. In the meantime, if your company has any questions about the new developments in California’s test for classifying workers, please contact Barsamian & Moody at (559) 248-2360.
The goal of this article is to provide employers with current labor and employment law information. The contents should neither be interpreted as, nor construed as legal advice or opinion. The reader should consult with Barsamian & Moody at (559) 248-2360 for individual responses to questions or concerns regarding any given situation.