Question

Answer: ETHIC TODAY: Is it fair to classify Uber and Lyft Drivers as Independent Contractors? On page 354

Answer 1

The purpose of this short contribution is to shed some light on the discussion regarding an Uber/lyft drivers’ qualification – whether they should be considered employees or independent contractors. If Uber/lyft is considered as an employer and the driver as an employee, then the Company will be responsible for certain matters. For instance, depending on the jurisdiction, withholding taxes on the amounts paid to the driver, social security and unemployment insurance obligations as well as other compliance related obligations. On the other hand, if Uber/lyft drivers are qualified as independent contractors, the Company will keep facing less paperwork, administrative hassles and costs. In this regard, the drivers will be responsible to inform their income to the tax authorities as self employed individuals.

Uber has affirmed that all drivers on its platform are partners and must be considered as independent contractors. However, the Company has faced various legal proceedings across the world wherein authorities belonging to different legal fields have argued that the drivers should be qualified as employees.

For example, in the UK, the Employment Tribunal ruled that drivers cannot be considered as self-employed but regular workers. The decision was also upheld by the Employment Appeal Tribunal and the Court of Appeal. Similarly, in Switzerland, the SUVA qualified Uber drivers on behalf of Social Security Agency of the Canton of Zurich, in May 2016, as employees. The Swiss State Secretariat for Economic Affairs (SECO[13]) also stated that Uber drivers should be qualified as employees. UNIA (Switzerland’s largest trade union) has also reached the same conclusion. Also, Le Tribunal des prud’hommes de Lausanne, recognized the drivers as employees. La Cour de Cassation in France also upheld the characterization as an employee. The main justification adopted by the French Court is based on the fact that an Uber driver cannot build his own client base or fix the prices which he/she thinks is fair. These characteristics make the driver an employee of the Company.

On the other hand, in the United States, the District Court of Pennsylvania declared Uber drivers as independent contractors. So did the State of Florida. But California has projected an atmosphere of doom and gloom for the Company, as the Government recently approved the AB5 bill. The bill was designed to determine if an individual should be qualified as an independent contractor or employee.

In order to decide which qualification is the correct one, an ABC test must be applied. that is: (A) Is the individual free from control of the hiring company?; and (B) Is the individual providing a service that is not the hiring company’s core business?; and (C) Is the individual truly engaged in running his/her own business of the same nature of the service provided to the hiring company?

In case the three questions are answered positively, the worker is considered an independent contractor. Consequently, in case of any of the questions are answer negatively, an employment relationship is established. Thus, in applying ABC provisions to the Uber model, drivers, if qualified as employees according to the proposed test, could gain protection established in California labor laws, although they would not have the right to claim some expenses against their taxes anymore. Additionally, Uber would be obligated to pay payroll taxes.

Nevertheless, Uber has also received some good news. In Australia, the Fair Work Ombudsman concluded an investigation against the Company and decided to qualify Uber drivers as independent contractors. Moreover, Brazilian highest Labor Court changed a lower decision and also pronounced Uber drivers are contractor.

Given these different opinions, we seek to add our perspective to the debate? As a starting point, it is relevant to bear in mind that labor law and tax law have different purposes. In case an individual is considered an employee under labor law does not mean that this same person should be considered an employee for tax law purposes.

In order to understand the contextual or common meaning of an employment relationship (at least in interpreting tax treaties), one could refer to the OECD Commentary on Article 15 which provides certain indicators. Indicators that can be relevant to determine an employment relationship, in particular, include checking (i) who has the authority to instruct the individual about the way the work should be performed; (ii) who controls and has responsibility over the place where the work is performed; (iii) who provides tools and materials at the individual’s disposal in order for that individual to perform the work; (iv) who determines how many workers are necessary to perform the work and their qualification; (v) who is in the position to select the individual and terminate the contractual agreement; (vi) who is allowed to impose disciplinary sanctions to the individual regarding his/her performance; (viii) who set up the individual’s holidays and working hours.

In light of these indicators, one could argue that drivers are employees as (i) the company provides some rules regarding car maintenance and manners that must be followed by the drivers, (ii) the Company fixes ride prices and handles the payment processing; (iii) Uber approves drivers’ applications and can cancel the use of the platform by them; (iv) the Company can also impose sanctions. These parameters indicate that there is some level of subordination and dependence.

In contrast, one could also argue that Uber drivers are independent contractors as (i) the drivers are flexible to provide services whenever and wherever they want to, that is, they are free to decide their work schedule and holidays; (ii) the drivers put the main tool necessary to provide services (for example, their own cars); (iii) drivers are able to refuse a client or a location to work (iv) drivers are free to contract with other parties and there is no exclusivity; (v) considering that around 80% of value of the service (fees) is given to the Uber driver, the fact that one of the parties gets such a high percentage can indicate a partnership, since it is not consistent with the traditional understanding of an employment relationship.

The above analysis indicates that it is difficult to arrive at a conclusion. Broadly speaking, the analysis shows that tax law (depending on the jurisdiction) can only classify the drivers as “employees” or “contractors”. However, the Uber Model has showed that this line is not that clear and you can have a “hybrid” model that encompasses characteristics of both an employee and a contactor.

At this stage, bearing in mind the absence of a proper definition that could be applied to the business model used by Uber, we prefer to rely on the opinion that a hybrid classification should prevail. This classification will entail separate tax related obligations for both Uber and the drivers.