Thursday, June 18, 2015

Share The Duck

Employee or independent contractor?

This is a question that has haunted the business world since the beginning of employment.

In the "good ol' days" there wasn't much concern and I think the overall attitude when my dad was out looking for work to help support the family was that business preferred employees because they had more direct control over their actions and outcomes.
I'm a chicken!

But as the business world grew more complex with increased regulation, labor standards and of course workers' compensation, the trend shifted, along with the demise of the Daddy Company (which took care of their employees long after retirement with generous pension plans and other benefits).

The global competitive marketplace took American businesses to task. Before we knew it there were lots of other countries that could produce the goods and services that we all consume for far less cost than we could produce them in this country because those businesses weren't subject to the same regulations, the same labor standards, and yes, the same workers' compensation standards (if any).

Now comes the "shared economy" where information is diversified among individuals willing to take on more risk in the distribution and dissemination of goods and services through singular channels that make money off a spread, providing in exchange more freedom, and perhaps greater profit, than a traditional employment relationship.

But as we know in workers' compensation, the definition of independent contractor versus employee is fungible and amorphous. As much as the business world would like, there can be no single definition with a clear black line that regulates the relationship between business and worker because there are just too many variables - however, the general rule that the more a business controls the worker, the more likely the worker will be ultimately found to be an employee.

Much has been made lately about Uber and Lyft - "ride share" companies that use technology to quickly and efficiently distribute transportation requests to providers that are sometimes found to be independent contractors, and more increasingly found to be employees.

The key element, of course, is the amount of control the company has over the worker.

News circulated fast yesterday when a California Labor Commissioner found that Barbara Berwick was an employee of Uber, and entitled to reimbursement for travel expenses.

Stephanie Barrett, the hearing officer for the case, noted that Uber delists any drivers whose ratings from customers fall below a certain point – four and a half out of five stars. The company also sets the fares customers pay for trips. Most importantly, the company owns the application, or app, that made Berwick’s work possible.

“Plaintiff’s car and her labor were her only assets,” Barrett wrote in the ruling. “Plaintiff’s work did not entail any ‘managerial’ skills that could affect profit or loss. Aside from her car, plaintiff had no investment in the business. Defendants provided the iPhone application, which was essential to the work. But for defendants’ intellectual property, plaintiff would not have been able to perform the work.”

“Defendants are in business to provide transportation services to passengers,” the ruling reads. “Plaintiff did the actual transportation of those passengers. Without drivers such as plaintiff, defendants’ business would not exist.”

Uber is taking the case up on appeal to the San Francisco Superior Court. It will argue, as it has in other jurisdictions, that the company merely provides the platform through which drivers find passengers.

The case should ultimately end up in a California Court of Appeal - San Francisco Superior Court is notoriously liberal (no surprise there) and it is my prediction that the Labor Commission's finding will be upheld at the Superior Court level.

The Berwick case stands in contrast to a 2012 decision from the commission, captioned Alatraqchi v. Uber Technologies, where a hearing officer found in favor of Uber, holding the driver was an independent contractor.

“The work arrangement was paid at a per-job rate. Plaintiff provided the means to complete the job. Plaintiff set his own hours and controlled the manner in which he completed the job. Defendant did not supervise or direct his work and only paid him when plaintiff invoiced defendant,” Hearing Officer Regina Pagalilauan wrote in that decision.

Uber is facing cases in California that could have further-reaching impacts than these single driver cases. Two cases, in U.S. District Court and the Northern District of California, are headed to jury trials to answer the question of whether drivers for Uber and Lyft are independent contractors or employees.

Silicon Valley dudes are smart - they are creating enormous value and wealth at unprecedented rates - but like many myopic technologists, digital fantasy interferes with what us liberal arts graduates often refer to as "history."

Indeed, recent history is telling enough of the ultimate fate of shared economy companies - FedEx just recently settled for a quarter of a billion dollars its liability from a 2014 California court ruling that its drivers were employees, not independent contractors.

Like Uber, Lyft and the other shared economy companies, FedEx's insistence that its drivers were  independent contractors and not employees was a critical component of the business model.

My opinion is that if it walks like a duck, talks like a duck and smells like a duck, it's probably not a chicken. Which makes it more likely to be a duck. Of course I'm in the work comp field, so I am biased towards finding an employment relationship.

Like many things that captivate our finances, shared economy technology is great. Until something bad happens. Then the downside shows up nasty, and allegiances change dramatically and quickly.

Which is why I think that shared economy companies will thrive in states where opt-out is or becomes available - one more business related tool that provides the flexibility to transform chickens into ducks.


That's a post for another day...

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