Labor Board writes Uber drivers are contractors under federal law

Uber drivers are not employees under federal law, the National Labor Relations Board general counsel's office wrote in an advice memo released Tuesday, joining the U.S. Department of Labor opposite California in a growing legal divide on classification.

Jayme L. Sophir, who heads general counsel Richard F. Griffin Jr.'s advice department, wrote the memo, which is dated April 16. In it, she emphasized viewing the issue through the "prism of entrepreneurial opportunity" when applying a multifactor common law test.

"Although there are several factors that point towards employee status, the strength of the evidence supporting independent-contractor status overwhelms those factors," she wrote.

"Drivers' virtually complete control of their cars, work schedules and log-in locations, together with their freedom to work for competitors of Uber, provided them with significant entrepreneurial opportunity. On any given day, at any free moment, UberX drivers could decide how best to serve their economic objectives," she concluded.

The memo echoes reasoning outlined in a Department of Labor opinion letter on April 29 regarding workers for "virtual marketplace companies," under which gig companies like Uber would fall.

The hardening legal ground on which Uber stands under federal law comes at a turbulent time for the company.

On Friday, the tech giant's initial public offering underachieved by opening below its estimated price range. In the following days, it trended downward, falling from a Friday afternoon peak of $44.73 to $39.96 at closing on Tuesday. In the lead-up to the IPO, the company had estimated a price range of $44 to $50 and was expected to open near midpoint.

In its disclosures to the U.S. Securities and Exchange Commission, Uber cited classification woes as a major risk to the company and acknowledged that if its drivers were classified as employees, its business would be adversely affected. On the eve of its IPO, it settled tens of thousands of misclassification disputes bound for arbitration at a cost of at least $146 million. Just days before, thousands of drivers nationwide protested over the issue and their dropping wages.

However, California's pivotal decision last year in Dynamex Operations West Inc. v. Superior Court still looms in the gig economy's home state. It established a stringent three-factor test that attorneys have said makes rideshare drivers appear to be employees though Uber has escaped lawsuits employing the ruling before reaching the merits.

On parallel ground to federal law developments, Dynamex has been girded. On May 3, the California Department of Industrial Relations' Division of Labor Standards Enforcement wrote a letter that the case, which has thus far only been applied to violations under the state's Wage Orders, could also be enforced on Labor Code actions that would also run afoul of the former. Shortly before, the 9th U.S. Circuit Court of Appeals found the decision applies retroactively.

In the memo, Sophir specifically downplayed the most difficult of the three Dynamex elements to satisfy in the company's greater fact pattern: the "B" prong stating a contractor must work outside of the hiring company's regular business.

"Although Uber disagrees, we assume arguendo that drivers ... worked as part of the employer's regular business of transporting passengers. But the board has not deemed this to be a strong or dispositive factor," the memo reads.

According to Glenn Danas of Capstone Law APC, Uber will likely try to leverage the letter's findings in litigation, including its other ties to the Dynamex test, like its focus on Uber's claimed lack of control over drivers which relates to the "A" factor.

"Of course the issue for Uber will be the 'B' prong, wherein Uber drivers are also engaged in the business of transporting people, just as Uber is, notwithstanding Uber's attempts to characterize itself as merely a 'technology platform,'" he said.