Lessons for California employers from the Uber saga

A testament to the power of arbitration agreements following epic systems & interplay of Dynamex’s impact on the gig economy

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Utilize a properly drafted arbitration agreement

As we previously reported, the U.S. Supreme Court’s decision in Epic Systems Corp. v. Lewis validated an employer’s ability to impose mandatory arbitration agreements, waiving the ability of an employee to bring a class action for wage and hour and other workplace-condition claims, as to condition of employment. Epic Systems was a huge win for employers nationwide. The implications of the U.S. Supreme Court’s decision was recently demonstrated in the Ninth Circuit’s August 25, 2018 decision of O’Connor v. Uber, a closely-watched saga that has been ongoing for more than five years. The U.S. Supreme Court’s decision bounded the employee-friendly Ninth Circuit and paved the way for a huge procedural win for Uber. The Ninth Circuit ruled that Uber’s arbitration provisions were valid and therefore all Uber drivers who want to pursue misclassification claims must enter individual arbitration – their ability to bring their claims as a class were barred. O’Connor highlights the power of a properly drafted arbitration agreement as a pro-active measure for employers.

Evaluate and monitor employee vs. independent contractor status

The core issue in O’Connor – whether Uber drivers were misclassified as independent contractors (freelancers) is an important one for the gig economy. The ability to classify such persons as independent contractors determines whether the core business model of disruptors like Uber or any other business that is based on a system of gig workers/independent contractors/freelancers is sustainable in California. The employee v. independent contractor issue has been a contentious one that culminated in the California Supreme Court’s decision this past spring in Dynamex Operations West v. Superior Court of Los Angeles, which debuted a broader worker-friendly standard known as the ABC test. Under the ABC test, a worker is only properly considered an independent contractor if:

  1. the worker is “free from the control and direction” of the company that hired them when they perform their work;
  2. the work performed falls “outside the usual course” of the hiring company’s business; and
  3. the worker has his/her own independent business or trade beyond the job for which they were hired.

The ultimate conclusion as to whether Uber drivers are independent contractors remains to be seen as the application of Dynamex plays out in the courts. Dynamex is expected to result in substantial disruption to numerous industries - well beyond gig companies such as Uber – for example, multi-level marketing, healthcare organizations, journalists, and trucking. In light of Dynamex, employers should evaluate and monitor the classification status of workers in their businesses. Misclassification of workers can result in wage and hour claim exposure that is ripe for class litigation, ever more highlighting the practicality of an arbitration agreement.