Federal authorities have deemed Uber drivers independent contractors in an opinion that could prove valuable for the ride-sharing company after its IPO valuation launched below expectations.
In an “advice memorandum” from the Office of the General Counsel of the National Labor Relations Board (NLRB) to one of its regional directors made public on May 14, the agency concluded that Uber’s control over UberX and Uber Black drivers – “by minimally impacting economic and entrepreneurial opportunity” – weighs in favor of independent-contractor status for drivers.
In coming to that conclusion, the NLRB looked extensively to its “SuperShuttle” decision in January 2019, when it ruled that franchisee drivers at the airport shuttle-van service are not employees under the National Labor Relations Act (NLRA).
“Indeed, UberX drivers had more entrepreneurial opportunity than the drivers in [the SuperShuttle case], who could control their earnings by selecting specific trips based on profitability, because UberX drivers could base decisions about where and when to log in on time-limited earnings opportunities like ‘surge’ fares and their total freedom to work for competitors,” the agency stated.
The NLRB advisement was based on an analysis of cases submitted between 2015 and 2016 from drivers based in three regions around the country (St. Louis, Missouri; Chicago, Illinois; and Brooklyn, New York) seeking employee status – and the compensation and benefits that come with that status as required under the NLRA.
It also marks the second time in two weeks that a federal agency has ruled in favor of contractor status for gig-economy businesses, following a similar decision on April 29 by the U.S. Department of Labor.
Worker classification status is extremely important to Uber (NYSE: UBER), which noted the cost of lawsuits related to the issue in its April 11 IPO. For example, Uber said it reached an agreement in March 2019 to settle an independent contractor lawsuit with drivers in Massachusetts and California for $20 million.
In addition to the cost of arbitration and legal settlements, Uber warned investors that the company would incur “significant additional expense” if it had to compensate drivers as a result of legal decisions that could require the company to reclassify its workers as employees. It would also “require us to fundamentally change our business model, and consequently have an adverse effect on our business and financial condition.”
While Uber and ride-share rival Lyft (NASDAQ: LYFT)are benefiting from decisions on the national level, some states are pushing back and ruling in favor of employee status. In Dynamex v. Superior Court of Los Angeles County, handed down by the California Supreme Court in 2018, legal experts believe the decision could have negative ramifications for traditional trucking companies as well.