Are Uber Drivers Independent Contractors or Employees?

A fine-line is drawn on a state-by-state, rather than case-by-case, basis.

Are Uber Drivers Independent Contractors or Employees?

New York City traffic has changed very little since the invention of the stoplight. Traffic continues to jam, jaywalking remains a pedestrian rite of passage, and horse-drawn carriages still make their rounds through Central Park. But change is as inevitable as a long-awaited green light. And when it comes to what New Yorkers consider public transportation by conventional means, all have been left in Uber’s dust. UBER, which describes itself as a “peer-to-peer ridesharing, taxi cab, transportation network-company,” has crushed the yellow cab and MTA’s monopoly on even the most hallowed of transfers with just an app; this and a pool of untapped potential, in the form of, quite literally, anyone with a car and a penchant for “hustling.”

It’s easy to see why driving for UBER might seem so liberating—drivers choose their hours, who they pick up and where, they’re allowed to work for competing peer-to-peer companies like Lyft or Gett, and they aren’t paid by Uber but by the customers themselves—the bottom line is, you’re not really working for Uber but for yourself. Or are you?

According to Uber’s website,  over 16,000 employees working for the company; but the number of drivers is almost 200 times that. Across 65 different countries, over 3 million drivers are making an average of 15 million trips every day. That seems to make things official: Uber drivers aren’t employees, they’re independent contractors. It certainly looks so on paper. There are no wages or overtime pay. Just ride after ride and a draining gas meter. Drivers don’t have taxes taken out of their paycheck; they only kick up a quarter of each fare to Uber. They’re expected to maintain their vehicles on their dime and time—no employee benefits or chance of promotion—not unless you can afford the mortgage on that new Escalade or limousine yourself.

But conflicting court rulings in San Francisco, Uber’s hometown, New York and Florida have called the Uber driver’s occupation into question. Are they independent contractors, or have they been misclassified?

The Silicone Valley giant considers itself a technology company—not a transportation enterprise—and its legal language defines an Uber driver as “a partner,” not as an employee. They’re provided with “business opportunities” rather than a livelihood. And that’s the truth: according to Bloomberg News, Uber drivers are earning pay that puts them just above the poverty line. It’s described as a “commitment to a bad business decision,” and the math explains why. Uber reports that its drivers gross an average of $20 an hour—but that’s before the 25% commission they charge for using the app-based platform for its “business opportunities.” With the fees out of the picture, the hourly rate drops down to $15.

Then come the logistics that Uber drivers have to cover themselves: gas, car washes, repairs, insurance, etc., knocking the average earnings per hour down to nearly half the original amount: $10 an hour. And that’s if you don’t stop hustling.

Despite Uber’s advertising campaign pushing for this image of a casual side-gig, most drivers hold no other jobs. Competition is fierce within and without this booming “gig economy” that Uber has tapped. But this is due to the generally unchecked number of Uber drivers.

Drivers who are already dependent on their cars to hash out a living are shackled to a lifeline that’s put them in debt and sucks the top dollar out of their hourly pay. For one Uber driver in Miami, it proved too much to bear. Darren McGillis borrowed $30,000 in 2015 to purchase an Outlander SUV before he started driving for Uber. That same year, an altercation with a passenger led to Uber deactivating his driver account and freezing his assets. Crushed by the down payments on the SUV, with no unemployment benefits to speak of from either Florida or Uber, McGillis sued them both. He argued that he was an employee after all, but the contract he’d signed said otherwise. In a 14-page decision that largely backed the gig economy business model, Miami’s Third DCA decided that, misclassified or not, McGillis had accepted Uber’s terms and conditions—which included being identified as a contract worker—so he could not be an employee. It was the verdict Uber had expected, but the case is far from closed. States such as California and New York are taking a much more hardline stance against the practice of such peer-to-peer companies.

Recent rulings in both states have put pressure on companies like Uber or Lyft to stop classifying their drivers as independent contractors and opt for employee status instead.

But doing so might come at a cost for Uber drivers. There’s a good chance Uber would have to drastically increase their cut of a driver’s pay to cover the mandated benefits for all its employees. And that can be a deal breaker for drivers just trying to cash in on the perks without the commitment.

Despite the semantics of these litigations, Uber CEO Dara Khosrowshahi says the company remains on course for its IPO in 2019. Valued at over $70 billion, Uber is the most highly valued startup worldwide; rising over $10 billion in capital since it was founded in San Francisco back in 2009.  According to the CEO, this jump was long overdue. “We have all of the disadvantages of being a public company, as far as the spotlight on us, without any of the advantages of being a public company,” Khosrowshahi said at the New York Times DealBook Conference early in 2017. It’s unclear how an IPO will affect the horde of Uber drivers.

But one thing is plain to see, that as things are now, Uber drivers are independent contractors—they just happen to be treated as employees and, in a few select states, classified as such, making this a question best solved, not on a case-by-case basis, but by state lines.

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