Ridesharing's House of Cards: O'connor v. Uber Technologies, Inc. and the Viability of Uber's Labor Model in Washington

• Publication year: 2021

RIDESHARING'S HOUSE OF CARDS: O'CONNOR V. UBER TECHNOLOGIES, INC. AND THE VIABILITY OF UBER'S LABOR MODEL IN WASHINGTON

Henry Ross

Abstract: Ridesharing companies, namely Uber and Lyft, have taken the transportation market by storm. These companies offer a competitive alternative to taxis through using smartphone apps and more efficient service offerings. As part of their business model, ridesharing companies treat their drivers as independent contractors rather than employees to minimize labor costs. However, drivers do not benefit from remedial labor statutes and thus (1) must pay for operating costs, (2) are not guaranteed a minimum wage, and (3) do not receive overtime pay. In O'Connor v. Uber Technologies, Inc., a class of California Uber drivers are challenging their independent contractor status under California law. The test used by California courts to determine whether a worker is an independent contractor or an employee differs slightly from the test that Washington courts apply. In 2012, the Washington State Supreme Court adopted a worker-friendly "economic realities" test for determining whether workers are in fact independent contractors. Applying the lessons from O'Connor to Washington independent contractor law, this Comment calls into question the viability of Uber's labor model in Washington.

INTRODUCTION

Uber, the ridesharing behemoth, has upended the transportation network in cities across the globe. As an alternative to the inefficiencies of traditional taxis, the company uses a smartphone app to connect customers with its drivers, which has proved to be a hit with customers.(fn1) This immense popularity has driven Uber to expand into over 270 cities and counting worldwide within a five-year period, and has led many to anoint Uber as the most successful Silicon Valley startup ever after just six years.(fn2) With a network of over 160,000 drivers in the United States alone, Uber has amassed an army of alleged independent contractors to drive its success.(fn3) Uber's independent contractor policy tracks a growing trend among American companies of using independent contractors to avoid workplace regulations.(fn4) By virtue of their independent contractor classification, Uber drivers and other independent contractors do not have employee benefits, pay expenses out of pocket, and are not entitled to guaranteed hourly wages or a salary.(fn5)

In O'Connor v. Uber Technologies, Inc.,(fn6) Californian Uber drivers are challenging their independent contractor status.(fn7) The plaintiffs allege that Uber has improperly used the independent contractor designation to save costs; in other words, Uber has made its rapid growth possible by sacrificing full-employee benefits for its drivers to capitalize on lower labor costs.(fn8) Thus far, the drivers have been remarkably successful in the suit. The trial court refused to grant Uber's motion for summary judgment after applying California's relatively employer-friendly independent contractor test.(fn9) Indeed, based on the drivers' apparent momentum in the case, many have speculated as to whether this lawsuit could lead to the end of Uber drivers' independent contractor status in California.(fn10) The "right of control" test applied by the Northern District of California trial judge is based on California's independent contractor law.(fn11) The "right of control" test is the descendent of the traditional test still used to determine whether the law may hold an employer liable for the tortious conduct of an employee.(fn12)

In contrast to California's test, in 2012 the Washington State Supreme Court adopted an "economic realities" test for determining whether a worker is an independent contractor for the purposes of the Washington Minimum Wage Act.(fn13) The "economic realities" test, while similar to the "right of control" test, is a more progressive, worker-friendly test that can often lead to a different result.(fn14)

The purpose of this Comment is to evaluate the legal reverberations that O'Connor could have in Washington. If the drivers ultimately succeed in their case using the more company-friendly California test in O'Connor, the Uber labor model could face a serious and credible challenge in any jurisdiction where drivers choose to bring such a suit. Part I examines the regulatory backdrop of ridesharing companies, and how the ascendency of Uber and other ridesharing companies has challenged traditional transportation regulatory schemes. Part II explores the factual and legal underpinnings of O'Connor. Part III discusses Washington's independent contractor law, particularly in light of the Washington State Supreme Court's Anfinson v. FedEx Ground Package System, Inc.(fn15) decision, which signaled a new, worker-friendly approach to independent contractor law in Washington. Finally, Part IV analyzes Uber drivers' likelihood of success in a misclassification claim, and ultimately concludes that Uber's labor model may not be viable under Washington law.

I. RIDESHARING COMPANY LABOR PRACTICES HAVE DISRUPTED TRANSPORTATION REGULATORY FRAMEWORKS

Uber has disrupted nearly a century of taxi regulations in America.(fn16) Most notable to consumers, Uber has brought new technology, new price structures, and consistently reliable service into the market.(fn17) Less visible to consumers are the labor practices these companies use in hiring and managing drivers. Uber officially treats its drivers as "independent contractors."(fn18) The independent contractor designation carries numerous advantages for Uber's bottom line: it does not have to guarantee its drivers minimum wage and does not reimburse drivers for on-the-job expenses incurred (e.g., gas and vehicle maintenance).(fn19) To understand how the independent contractor designation plays into the Uber model, it is critical to understand the nature of the company, its service offering, and the market in which it operates.

A. Uber and the Onslaught of Competition in the Taxi Industry

Startup competitors of traditional taxi services have wedged their way into a once airtight taxi market. The most notable competitors, Uber and Lyft, use a simplified model that incorporates smartphone technology to address two operational challenges faced by traditional taxi companies- dispatch and payment.(fn20) Instead of the traditional taxi-hailing process, customers can order a ride on their phone through a simple smartphone app.(fn21) Drivers do not accept cash, and a customer's credit card information is already stored-and automatically charged following a ride-on his or her phone by the smartphone app.(fn22) Uber and Lyft use a "surge pricing" model that raises prices when demand outpaces the rate at which the services can respond to requests for rides.(fn23) These new companies also use customer reviews to reflect a driver's quality, which the company monitors as a form of remote driver supervision.(fn24) The rapid growth of these new services reflects their popularity.(fn25) Indeed, many economists believe that customers are ultimately benefitting from the introduction of ridesharing companies into the transportation web.(fn26) Uber now operates in more than 200 cities in more than fifty countries,(fn27) and was valued at forty billion dollars during a recent financing round to raise additional capital.(fn28)

Public opinion surveys show why ridesharing services have experienced such rapid growth. In a study commissioned by the City of Seattle in September 2013, a time when Uber and Lyft were growing in the area, over ninety percent of ridesharing customers rated the response time of their ridesharing vehicle as "Good" or "Very Good."(fn29) In contrast, only fifty percent of taxi customers rated the response time of their vehicle as "Good" or "Very Good."(fn30) The study also found that "[o]f 105 negative comments [received during the survey], 102 were related to taxis. Of 16 positive comments, only 1 was related to taxis."(fn31) Additionally, on six specific metrics polled-(1) willingness to accept credit cards, (2) courtesy of driver, (3) route knowledge of driver, (4) appearance of vehicle, (5) promptness of arrival, and (6) ease of booking/hailing a ride-ridesharing services received higher customer ratings than taxis in every category.(fn32)

Despite a sleeker service, Uber's business is in a legal grey area at best, and is patently illegal at worst.(fn33) Uber generally uses a "wait and see" attitude when entering new markets-the service expands until local governments actively enforce regulations or bring legal action.(fn34) Inevitably, the markets that Uber enters must respond in some fashion, and many jurisdictions have elected to ban the service outright to maintain the status quo for taxis.(fn35)

Though Uber largely encounters resistance because its services do not conform to local taxi regulations, its aggressive business practices and a series of public gaffes are responsible for at least a portion of that resistance from customers, policymakers, and regulators alike.(fn36) For example, news leaked in November 2014 that Uber executive Emil Michael once publicly suggested that Uber might use personal data acquired in the course of business to humiliate journalists that are unfriendly to Uber.(fn37)

The "surge-pricing" method has also cast Uber in a bad light.(fn38) During a recent shooting and hostage situation in Sydney, Australia, Uber applied surge pricing to the neighborhoods near...