A ruling, if upheld through appellate judicial scrutiny can change the structure of modern-day technology driven enterprises. On 3^rd June, 2015 the California labour commissioner's office held that a driver for the ride-hailing service Uber should be classified as an employee, not an independent contractor.

The ruling ordered Uber to reimburse Barbara Ann Berwick $4,152.20 in expenses and other costs for the roughly eight weeks she worked as an Uber driver last year. While Uber has long positioned itself as merely an app that connects drivers and passengers - with no control over the hours its drivers work - the labour office cited many instances in which it said Uber acted more like an employer.

For the uninitiated this is what UBER does;

• Uber provides a service whereby individuals in need of vehicular transportation can log in to the Uber software application on their smartphone, request a ride, be paired via the Uber application with an available driver, be picked up by the available driver, and ultimately be driven to their final destination.
• Uber receives a credit card payment from the rider at the end of the ride, a significant portion of which it then remits to the driver who transported the passenger.

How do Drivers connect with UBER

• Before becoming “partners” with Uber, Plaintiffs and other aspiring drivers must first complete Uber’s application process. Applicants are required to upload their driver’s license information, as well as information about their vehicle’s registration and insurance.
• Applicants must also pass a background check conducted by a third party. Would-be drivers are further required to pass a “city knowledge test” and attend an interview with an Uber employee. Interviewees are instructed to “bring your car, dress professionally and be prepared to stay for 1 hour.”

• Once a prospective driver successfully completes the application and interview stages, the driver must sign contracts with Uber or one of Uber’s subsidiaries (Raiser LLC). Those contracts explicitly provide that the relationship between the transportation providers and Uber/Raiser “is solely that of independent contracting parties The parties “expressly agree that this Agreement is not an employment agreement or employment relationship.”

•  The relevant contracts further provide that drivers will be paid a “fee” (i.e., fare) upon the successful completion of each ride. Uber sets fares based principally on the miles traveled by the rider and the duration of the ride. Because Uber receives the rider’s payment of the entire fare, the relevant contracts provide that Uber will automatically deduct its own “fee per ride” from the fare before it remits the remainder to the driver.  Plaintiffs presented evidence that Uber typically takes roughly 20 percent of the total fare billed to a rider as its “fee per ride.”

Argument before the Labour Commissioner

• Uber considered itself as a “technology company,” not a “transportation company,” and describes the software it provides as a “lead generation platform” that can be used to connect “businesses that provide transportation” with passengers who desire rides.
• Uber noted that it owns no vehicles, and contended that it employs no drivers. Rather, Uber partners with alleged independent contractors that it frequently refers to as “transportation providers”.

• Opposite party stated that Uber does not sell its software in the manner of a typical distributor. Rather, Uber is deeply involved in marketing its transportation services, qualifying and selecting drivers, regulating and monitoring their performance, disciplining (or terminating) those who fail to meet standards, and setting prices.

Employer-employee relationship was established through the following tests;

• Whether the entity retains “all necessary control” over the worker’s performance.”
• The fact that a certain amount of freedom is allowed or is inherent in the nature of the work involved” does not preclude a finding of employment status.
• What matters is “not how much control a hirer exercises, but how much control the hirer retains the right to exercise.”;

• The “right to discharge at will, without cause” is “strong evidence in support of an employment relationship.” The “power of the principal to terminate the services of the agent [without cause] gives him the means of controlling the agent’s activities.”;
•  Whether the one performing services is engaged in a distinct occupation or business;
• The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision;
• The skill required in the particular occupation;
•  Whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work;
•  The length of time for which the services are to be performed;
• The method of payment, whether by the time or by the job;
• Whether or not the work is a part of the regular business of the principal;
•  Whether or not the parties believe they are creating the relationship of employer-employee;
• The alleged employee’s opportunity for profit or loss depending on his managerial skill;
•  The alleged employee’s investment in equipment or materials required for his task, or his employment of helpers;
• Whether the service rendered requires a special skill;
• The degree of permanence of the working relationship; and
• Whether the service rendered is an integral part of the alleged employer’s business.

Court trashes Uber’s claim of being merely a “Technology Company”

• “Uber’s self-definition as a mere “technology company” focuses exclusively on the mechanics of its platform (i.e., the use of internet enabled smartphones and software applications) rather than on the substance of what Uber actually does ( i.e., enable customers to book and receive rides).
•  Uber engineered a software method to connect drivers with passengers, but it is merely one instrumentality used in the context of its larger business. 
• Uber does not simply sell software; it sells rides.
• Uber is no more a “technology company” than;
• Yellow Cab is a “technology company” because it uses CB radios to dispatch taxi cabs,
•  John Deere is a “technology company” because it uses computers and robots to manufacture lawn mowers, or
•  Domino Sugar is a “technology company” because it uses modern irrigation techniques to grow its sugar cane.
• Indeed, very few (if any) firms are not technology companies if one focuses solely on how they create or distribute their products. If, however, the focus is on the substance of what the firm actually does ( e.g. , sells cab rides, lawn mowers, or sugar), it is clear that Uber is most certainly a transportation company, albeit a technologically sophisticated one.

• Uber’s own documents show that it characterizes itself as a transportation company, transportation network, or on-demand car service.

• It is obvious drivers perform a service for Uber because Uber simply would not be a viable business entity without its drivers

• Uber’s revenues do not depend on the distribution of its software, but on the generation of rides by its drivers.

• Uber  only makes money if its drivers actually transport passengers.

• Uber not only depends on drivers’ provision of transportation services to obtain  revenue, it exercises significant control over the amount of any revenue it earns: Uber sets the fares it charges riders unilaterally.

• Uber claims a “proprietary interest” in its riders, which further demonstrates that Uber acts as more than a mere passive intermediary between riders and drivers.  For instance, Uber prohibits its drivers from answering rider queries about booking future rides outside the Uber app, or otherwise “soliciting” rides from Uber riders.”

Do Indian cab operators have to worry?  YES.

• A lot of cab operators such as RadioCab, Traveltime, Meru, Ola Cabs, TaxiforSure have sprung up in India including Uber.
• Most of these cab operators are providing services on the same model as that of Uber.
• The reasoning provided by the Labour Commissioner of California is applicable in the Indian scenario as well.
•  For proving the existence of an employer-employee relationship, it is necessary to apply the tests as mentioned above in line with tests laid down by the Supreme Court of India from time to time. The question is always regarded as mixed question of facts & law. Therefore, each of the cases can be analysed factually from a legal point of view to arrive at a conclusion.
•  When a company engages people as freelancers who have little certainty over their wages and job status - Companies like Uber minimise costs, even as they maintain considerable control over drivers' workplace behaviour.

Conclusion

• Such control is typically the hallmark of an employee relationship, which should bring with it benefits, more stable pay and greater job security.
• E-commerce companies who are following this kind of partnership models/aggregator models can find themselves in a legal soup, if there is resentment amongst the workers. Labour unions would be happy to espouse their cause.
•  "For anybody who has to pay the bills and has a family, having no labour protections and no job security is at best a mixed blessing," said Robert Reich, former secretary of labour and a professor of public policy at the University of California, Berkeley. "At worst, it is a nightmare. Obviously, some workers prefer to be independent contractors - but mostly they take these jobs because they cannot find better ones."

By

Mr. Partha Pati

Partner

Abhay Nevagi and Associates, Pune

This article was first published in http://www.asklabourproblem.info/, a compendium of knowledge on unique and varied aspects of Labour laws & Industrial Relations in India, maintained, operated and updated by Abhay Nevagi & Associates, Advocates, Pune and in http://www.livelaw.in  (as on July 07, 2015).