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Judge Blocks California Gig Economy Law Enforcement on Truckers

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A federal judge halted California’s attempt to regulate trucking companies’ use of independent drivers under the state’s new “gig economy” law, extending a temporary bar on enforcement of the measure while an industry challenge plays out in court.

The order bolsters the trucking industry push to carve out an exemption for the law, which seeks to force companies to classify certain contract workers as employees. It follows a state court decision last week that said the law is pre-empted by the Federal Aviation Administration Authorization Act, or FAAAA, which largely bars states from regulating interstate motor carriers.

The trucking companies are challenging a test that the California law, known as AB5, uses to determine whether contract workers should be considered employees. Aimed at tech companies like

Uber Technologies Inc.

and Postmates Inc., the law essentially codifies a state court ruling in April 2018 involving package-delivery drivers.

Trucking companies say the three-part test, which is stricter than a previous standard, would prohibit a common industry practice of using independent contractors to haul freight. The use of independent owner-operators is especially prevalent in port trucking operations, where critics including the Teamsters union say the practice has led to abuses and the misclassification of workers who should be considered company drivers.

“With AB5, California runs off the road and into the preemption ditch of the FAAAA,” Judge

Roger T. Benitez

in the U.S. District Court for the Southern District of California wrote in a ruling Thursday on a lawsuit filed by the California Trucking Association and truckers

Ravinder Singh

and

Thomas Odom.

The judge issued a preliminary injunction temporarily blocking the state from enforcing the law for motor carriers operating in the state “pending the entry of final judgment in this action.”

There is “little question that the State of California has encroached on Congress’ territory by eliminating motor carriers’ choice to use independent contractor drivers, a choice at the very heart of interstate trucking,” Judge Benitez wrote.

The plaintiffs met the burden for an injunction by showing the likelihood of success on the merits, the judge wrote, and the likelihood of irreparable harm. The judge wrote that unless companies changed “their business operations to treat independent-contractor drivers as employees for all specified purposes under California laws and regulations,” they risk government enforcement actions and criminal and civil penalties.

More From WSJ Logistics Report

“This is a major win for the trucking industry,” said transportation lawyer

Ronald Leibman,

a partner at McCarter & English LLP who represents trucking companies, brokers and shippers and who isn’t involved in the California case.

The judge’s finding that the plaintiffs were likely to prevail “puts a tremendous burden on the state of California to try to prove differently,” Mr. Leibman said.

He said the order could affect how similar proposals may be rolled out in states such as New Jersey. “This largely could take the wind out of the sails of government and labor groups trying to put through these very highly prescriptive regulations,” Mr. Leibman said.

California’s new worker-protection bill could require Uber and Lyft to treat drivers as employees, but not all workers welcome the changes. Photo/Video: Jake Nicol/The Wall Street Journal

The ruling is “a significant win for California’s more than 70,000 independent owner-operators,”

Shawn Yadon,

chief executive officer for the California Trucking Association, said in a statement.

California Attorney General

Xavier Becerra’s

office said it “has and will continue to defend laws that are designed to protect workers and ensure fair labor and business practices,” and that it is reviewing the decision.

Stacey Leyton,

a lawyer for the Teamsters union, which intervened in the case to defend the law, said, “We think the decision is wrong.”

The union is disappointed in the ruling and “considering all options,” but hasn’t decided whether to appeal the order to the Ninth Circuit Court of Appeals, Ms. Leyton said. “We are confident that we are right on the law and that if the issue is taken up on appeal,” the court would rule differently.

Write to Jennifer Smith at jennifer.smith@wsj.com

Copyright ©2019 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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Gig economy musn’t push labor back into 19th century – Deutsche Welle

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Gig economy firms ordered to give 60,000 riders contracts in landmark Italian ruling

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FOUR major gig economy firms in Milan have been ordered to employ 60,000 delivery riders and pay €733 million (£635m) in fines in a huge victory for workers’ rights.

The decision follows last Friday’s landmark Uber ruling in the British Supreme Court that found drivers for the company were workers and not self-employed.

Authorities in Italy’s largest city gave Deliveroo, UberEats, JustEat and Foodhino-Glovo 90 days to comply with their order.

Deputy Prosecutor Tiziana Siciliano said: “The vast majority of these riders are employed with occasional self-employment contracts … but it emerged without a shadow of a doubt that they are fully included in the organisation of the company.”

Ms Siciliano also said an IT platform that managed the workers, ranking them according to performance, forced them to labour like slaves without basic employment rights.

“This system actually forces the rider to accept all orders in order not to be demoted in the ranking and get less work,” she said. “This is the reason why it is impossible to take holidays or sick leave.”

Prosecutor Francesco Greco declared that the ruling meant “it is no longer the time to say that they are slaves. It’s time to say that they are citizens.”

The order also places obligations to provide safe bicycles, accident compensation and training to the riders.

 JustEat said it was launching an internal investigation into its workers’ safety and said it had made changes to its business model to “introduce a safer, more controlled and direct system with our workers — as employees.”
 
 But UberEats, Deliveroo Italy and Foodhino-Glovo said they did not agree with the order.
 
“The online food delivery is an industry that operates in full compliance with the rules and is able to guarantee an essential service,” they said.

A worldwide boom in food delivery because of lockdowns imposed by coronavirus has put the spotlight on the plight of couriers worldwide who often lack proper employment rights.

The European Commission launched a public consultation on the rights of gig economy workers on Wednesday. The standing committee of China’s National People’s Congress also began consideration of a draft law strengthening legal protections for workers in “flexible” employment last month following protests over the mistreatment of gig economy workers.

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How does the Uber decision impact the gig economy as a whole?

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The Supreme Court held that “Uber drivers were not in business on their own account”

We take a deep dive into this judgment which has had a final say on whether Uber drivers (and potentially other gig economy individuals) are workers.

A. ISSUES

  • Were Uber drivers working under workers’ contracts (and therefore qualify for the national minimum wage, paid annual leave and other workers’ rights)?
  • If so, were the drivers working under such contracts whenever they were logged into the Uber app (and not just when they were driving passengers to their destinations)?

B. PROCEEDINGS BELOW

  • The employment tribunal found that the drivers were “workers” as defined under s.230(3) of the Employment Rights Act 1996 (ERA), more commonly known as the limb (b) workers. The tribunal further found that the drivers were working for Uber London during any period when a driver had the Uber app switched on, was within the territory in which he was authorised to work and was able and willing to accept assignments.
  • The EAT and the Court of Appeal dismissed Uber’s appeal of the tribunal decision and the issues ultimately ended up in the Supreme Court. The case was heard on 21 and 22 July 2020 and the judgment was handed down on 19 February 2021.

 

C. BACKGROUND KNOWLEDGE

Section 230(3) ERA

The term “worker” is defined by s.230(3) as:

an individual who has entered into or works under (or, where the employment has ceased, worked under) –

(a) a contract of employment or

(b) any other contract, whether express or implied and (if it is express) whether oral or in writing, whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer or any profession or business undertaking carried on by the individual;

and any reference to a worker’s contract shall be construed accordingly.

Limb (b) has three elements:

(i) a contract whereby an individual undertakes to perform work or services for the other party;

(ii) an undertaking to do the work or perform the services personally;

(iii) a requirement that the other party to the contract is not a client or customer of any profession or business undertaking carried on by the individual

This case was concerned with the first element of limb (b) viz., whether there was a worker’s contract. There was no dispute between the parties as to whether the services were performed personally (which they were) and that Uber was not a client or customer of the drivers.

The issue of whether there is a right of substitution in the contract and whether this was actively utilised in practice by the workers is an issue that is more pertinent to the second element of limb (b). This issue did not arise in this case (see below Section E Analysis).

Bates van Winkelhof v Clyde & Co

Lady Hale Bates van Winkelhof maintained that employment law distinguishes between three types of people:

  • those employed under a contract of employment;
  • those self-employed people who are in business on their own account;
  • intermediate class of workers who are self-employed but who provide their services as part of a profession or business undertaking carried on by someone else.

D. SUPREME COURT JUDGEMENT

ISSUE 1: WERE DRIVERS WORKING UNDER WORKERS’ CONTRACTS (AND THEREFORE QUALIFY FOR THE NATIONAL MINIMUM WAGE, PAID ANNUAL LEAVE AND OTHER WORKERS’ RIGHTS)?

The central plank of this judgment centres whether Uber drivers are to be regarded as working under contracts with Uber whereby they undertook to perform services for Uber as opposed to in business on their own account. The conclusion that Uber drivers are workers and not in business on their own account is based on three premises which will be considered below.

1. THAT WRITTEN TERMS OF A CONTRACT BETWEEN THE DRIVERS AND UBER ARE NOT A STARTING POINT IN DETERMINING THEIR WORKER STATUS.

The Supreme Court maintained that to state that a contract is a starting point is at odds with the purpose of statutory protection afforded to workers. Employers are often in a position to dictate contract terms and the individual performing the work has little or no ability to influence those terms that give rise to the statutory protections stipulated under the National Minimum Wage Act or the Working Time Regulations.

This approach is further supported by the fact that there is prohibition on contracting out of such statutory protections as can be found under s.203 (1) ERA which renders as null and void any provision or agreement that purports to exclude or limit the operation of the statute.

2. THE STARTING POINT FOR DETERMINING WORKER STATUS IS THAT ENDORSED IN THE CASE OF CARMICHAEL V NATIONAL POWER.

The House of Lords decision in Carmichael v National Power [1999] 1 WLR 2042 stated that where there is no written contract between the parties or at least where the written contract did not represent the true nature of the relationship, it would be appropriate to look at the following factors:

  • the language of the correspondence between the parties;
  • the way in which the relationship had operated;
  • evidence of the parties as to their understanding of it.

The Supreme Court stated that although written terms should not be ignored they are not to be treated as a starting point for analysis, especially where the bargaining power of the parties means that the individual had no say in drafting the terms and the written agreement would not represent how the parties actually conducted themselves. The Court also maintained that often the objective of the written terms is to circumvent altogether the statutory protections that would otherwise be afforded to the individuals concerned.

3. IN DETERMINING THE STATUS OF AN INDIVIDUAL WORKER, THE DEGREE OF CONTROL EXERCISED EMPLOYER IS OF UTMOST IMPORTANCE: THE GREATER THE CONTROL, THE MORE LIKELY THE INDIVIDUAL WILL BE CLASSIFIED AS A WORKER.

Key indicators of this control are subordination and dependence upon another person (employer) in relation to the work done. The greater the subordination and dependence, the greater the degree of control exercised by the employer.

CONCLUSION

Applying the above analyses, the Supreme Court identified five aspects of the employment tribunal’s findings to support the conclusion that Uber drivers were working for and under contracts with Uber.

  • The remuneration paid to the drivers is fixed by Uber and the drivers have no say in it.
  • The contractual terms under which they work are dictated by Uber.
  • Once logged onto the Uber app, the driver’s choice of accepting or rejecting requests is constrained by Uber, for example if the acceptance rate falls below a certain percentage then a penalty is imposed on the driver by way of being logged out for 10 minute before they can be logged back on.
  • The way the services are delivered by the drivers is tightly controlled by Uber, for example under the rating system, if it falls below a certain level for a period of time Uber can effectively terminate the contract with that driver.
  • Restriction of communication between driver and customer means that the drivers have little or no ability to improve their economic position through professional or entrepreneurial skill other than working longer hours whilst constantly meeting Uber’s measures of performance.

ISSUE 2: WERE THE DRIVERS WORKING UNDER WORKERS’ CONTRACTS WHENEVER THEY WERE LOGGED INTO THE UBER APP (AND NOT JUST WHEN THEY WERE DRIVING PASSENGERS TO THEIR DESTINATIONS)?

Put the question another way: during what periods where the drivers working?

The tribunal at first instance found that a driver was working under a worker’s contract when:

  • he had the Uber app switched on;
  • he was within the territory in which he was authorised to use the app; and
  • he was ready and willing to accept trips

Uber argued that the drivers were only working under workers’ contracts when they were actually driving passengers to their destinations. This is because, they argued, the driver had a right to turn down work even when they were logged onto the app and so the driver had no contractual obligation to undertake work for Uber whilst logged onto the app.

The Supreme Court rejected this argument on several grounds:

  • that the driver has the right to turn down work does not preclude a finding that he is employed under a worker’s contract so long as there is an “irreducible minimum of obligation” i.e. if there is an obligation to do some work, then the right to turn down work is not fatal.
  • the Welcome Packet issued to drivers at the start referred to logging onto the Uber app as “going on duty” and instructed drivers that “Going on duty means you are willing and able to accept trip requests“.
  • in reality, there was more than an irreducible minimum of obligation because a penalty would be imposed on those who turn down work too often.

E. ANALYSIS

This judgment is consequential not least because it does not just affect Uber but the companies in the wider gig economy which will have to (if haven’t done so already) review and rearrange their working model, in some cases quite drastically. As part of this effort, any analysis that relied on previous judgments that focused on the right of substitution will have to be adjusted to take into consideration this judgment. Although the substitution analysis is relevant to the second element of limb (B) under s.230(3) ERA (namely, personal service), this judgment will form the bedrock of determining the worker status going forward.

A key takeaway is that the Supreme Court has somewhat relegated the importance of written agreements between the parties as a mere factor to consider, and not a starting point for substantial analysis. This does not mean that employers should pay less attention to the written agreement but it does mean that the employers have to place greater weight and effort into aligning the written agreement with the actual practical aspects of how the workers work.

Another key commercial impact of this judgment is that attempts to maintain the quality of their brand will likely be construed as tools for control that enhance subordination and dependence of workers on the organisations.

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