Independent Contractors and the Sharing Economy

With Razak v. Uber Technologies, a federal judge for the U.S. District Court for the Eastern District of Pennsylvania held that Uber limo drivers are independent contractors for the purposes of federal law, as explain by an employment lawyer. In February, a San Francisco U.S. Magistrate Judge held similarly in Lawson v. Grubhub, that the Grubhub food delivery workers are independent contractors. In effect, this signals that, under federal law, ride-sharing drivers and potentially other people working in the sharing economy (also known as the “gig economy”) are considered independent contractors – and not employees. This distinction – between independent contractors and employees – is huge, because it either restricts or expands what a company has to do to comply with federal employment law and labor standards, like overtime and minimum wage protections.

The Razak case was filed in February of 2016, on behalf of all limo drivers who drive for UberBLACK. It contended that Uber was failing to pay overtime and minimum wage, and that this violated the Fair Labor Standards Act (“FLSA”). However, the FLSA – and its minimum wage and overtime mandates – apply only to employees and not independent contractors. In deciding that these workers are independent contractors and not employees, the judge in Razak found that Uber does not have sufficient control over the drivers to mean they are employees because they have enough flexibility to determine when and where they want to drive. For this reason, they were not employees, but instead independent contractors, and therefore not covered under the FLSA.

Most cases dealing with how to classify Uber drivers have gone to arbitration and, for this reason, there has not been this clear of a ruling on the matter. Some state agencies, such as in Florida, have said that Uber drivers are not employees, while in other states, like California and New York, they are. So, this is a consequential decision, and has implications for the larger sharing economy in terms of the legal protections afforded to workers in food delivery and ride-sharing jobs. According to this decision, though, they are classified as independent contractors, limiting their rights and remedies.

The attorney for the plaintiffs has said he will be appealing the decision to the Third Circuit in Philadelphia. The Third Circuit would be the first federal appellate court to actually evaluate whether Uber drivers are employees or independent contractors. As many people are employed through the gig economy, these decisions are massively important in shaping the economy and legal protections given to workers in these sectors.

Thanks to our friends and contributors from Barrett & Farahany, LLP for their insight into independent contractors and sharing the economy.