By Steven J. Shanker, Esq.
As I have stated many times over, the issue of employer-employee relationship is a legal issue that is a matter of paramount importance for the traditional for-hire vehicle (FHV) industry in the City of New York. In my article last month, I detailed why it is so important to conduct an annual audit of your livery and black car base operations to ensure that the drivers you send dispatches to are most likely to be considered independent contractors and not employees. The reason is not only so you stay in compliance with federal, state, and city law, but so you can defend your business model if your base is sued relative to this issue.
I also stated last month that, ever since Uber and Lyft entered the NYC FHV marketplace, the legal landscape has changed. Suddenly, these app-based companies started to exercise more direction and control over their drivers, more so than any traditional FHV base did prior thereto. The old saying is true: One bad apple can spoil the bunch. Let me explain why.
Traditional FHV bases, outside of the luxury limousine sector, typically had a working relationship with their affiliated drivers, which properly classified them as independent contractors. Now, everyone from personal injury lawyers to certain government regulators and taxing authorities thinks that all FHV bases operate in the same manner as Uber and Lyft. They are wrong. They see app-based companies as part of the gig economy.
The gig economy, also called the sharing economy, is an activity where people earn income by providing on-demand work, services, or goods. Often, it is through a digital platform like an app or website. In a sense, FHVs can be said to be the first gig economy industry. FHV drivers have been operating in relatively the same manner since the radios were taken out of the yellow taxicabs in the mid-1980s. Before then, yellow taxicabs could receive dispatches via radio. The taxicab roof light used to have not only an “Off Duty” light but also an “On Radio Call” light. The “black car” was the industry response to a city mandate that all taxicabs take the radios out of their cabs. Back then, a radio dispatch was done primarily via CB radios and Radio Access Networks. This, of course, was before the creation of and widespread use of the wireless internet.
After the mid-1980s, black cars, whose name was devised by city officials looking to distinguish them from taxicabs and limousines, were not allowed to pick up passengers hailing them on the street. From the mid-1980s until Uber and Lyft entered the marketplace, the FHV industry operated in generally the same fashion. The customer calls a company via telephone to schedule a trip, the dispatch base offers the trip to a licensed driver, driver accepts trip, and provides the customer with transportation. Uber and Lyft brought massive technological change to the FHV industry. They also brought their business practices, which have been found by the courts to be the operations of an employer of drivers.
It has been said that bad cases make bad law. For example, in December 2020, a New York Appellate Court found, in an unemployment case, that Uber was the employer of its drivers. In a case by the name of Matter of Lowry (Uber Tech., Inc – Commissioner of Labor), 189 AD3d 1863, 1 (3d Dept 2020]), the Court acknowledged that Uber operates a digital platform, accessed via a smartphone app, that pairs customers in need of vehicular transportation with an available driver who picks them up and drives them to their final destination. The Court found that Uber was the employer of its drivers because Uber controls the drivers’ access to their customers, calculates and collects the fares and sets the drivers’ rate of compensation. Uber provides a navigation system, tracks the drivers’ location throughout the trip and reserves the right to adjust the fare if the drivers take an inefficient route. Uber also controls the vehicle used, precludes certain driver behavior, and uses its rating system to encourage and promote drivers to conduct themselves in a way that maintains a positive environment.
The evolution of the gig economy and the use of an app surely did not stop with Uber and Lyft. Postmates is a delivery business that uses a website and smartphone application to dispatch couriers to pick up and deliver goods from local restaurants and stores to customers in cities across the country.
In March 2020, the New York Court of Appeals, the highest court in the State of New York, found that Postmates was the employer of its couriers. In a case by the name of Matter of Vega, 35 NY3d 131 (2020), the Court held that Postmates is operated through a digital platform, accessed via smartphone app, which connects customers to Postmates couriers, without whom the company could not operate. While couriers decide when to log into the Postmates app and accept delivery jobs, the company controls the assignment of deliveries by determining which couriers have access to possible delivery jobs. Although Postmates does not dictate the exact routes couriers must take between the pickup and delivery locations, the company tracks courier location during deliveries in real time on their omnipresent app, providing customers an estimated time of arrival for their deliveries. The couriers’ compensation is unilaterally fixed by Postmates and the couriers have no ability to negotiate it. The couriers are paid by Postmates. Postmates, not its couriers, bears the loss when customers do not pay. Further, Postmates unilaterally sets the delivery fees, for which it bills the customers directly through the app.
Also, Amazon Logistics, a subsidiary of Amazon.com, operates a digital platform and smartphone app, known as Amazon Flex, that schedules jobs for its delivery partners to pick up and deliver packages and/or food orders for customers of Amazon. In December 2020, a New York Appellate Court found Amazon Logistics to be the employer of its delivery partners. See Matter of Khaychuk (Amazon Logistics, Inc. – Commissioner of Labor), 211 AD3d 1250 (3d Dept 2022). The Court held that, “In our view, by providing the customers, assigning the deliveries, limiting the time frame for the deliveries and unilaterally setting the fees paid to [delivery partners], it was proof that Amazon Logistics exercised sufficient control over significant aspects of the work of the delivery partners in order to establish an employment relationship.
Finally, there is Grubhub, the food delivery app-based platform. In early April 2023, a federal court in California found a Grubhub delivery driver to be an employee, rather than an independent contractor. Grubhub has maintained that it is a marketing company that provides an online platform to connect restaurants to customers and facilitate online food ordering, with food delivery being only a minor part of its business.
While most NYC black car and livery bases do not operate like Uber and Lyft, the fact remains that to stay competitive and in compliance with the voluminous rules of the New York City Taxi & Limousine Commission (TLC), the traditional FHV sector had to get their own app to remain efficient and keep up with the needs and desires of customers to obtain a trip via an app. This brought the traditional FHV sector into the 21st century, but it also brought them into the world of being an app-based platform.
So, what does all this mean? It means that while many black car and livery bases wish they could have the customer base that Uber and Lyft have, the sad reality is that the bad case law made by Uber, Postmates, and others in the gig economy, has placed the traditional FHV industry in the legal and regulatory cross-hairs. Now, more than ever, the traditional FHV sectors must make sure they can withstand the legal test by proving that drivers who receive dispatches are independent contractors.
Since the law never keeps pace with modern-day affairs, a new model is needed. The old legal construct of a worker being either an employee or an independent contractor is outdated and inapplicable to the technological realities of the 21st century. I have advocated for what I call “the 3rd way” – which would be to create a new classification called “the gig worker.” Since the gig worker has great independence and freedom, they should not be entitled to the same protections as an employee. On the other hand, the growing size of the gig economy and the massive number of companies that rely upon a digital platform requires companies to pay something by way of benefits to workers in the gig economy. Not full benefits like an employee, but also not nothing, like an independent contractor. This is a fair and reasonable way to not only split the proverbial baby but to ensure that both the corporate world and the worker world continue to flourish well into the future. To do otherwise leads to a battle where it is all or nothing.
For now, the law in New York on the issue of employee vs. independent contractor has remained stable, but the writing is on the wall. If the app-based companies and those in the gig economy do not find a solution to the legal issues raised by the rise and growth of the gig economy, the courts will make that determination for you. As the old saying goes, you know a good deal was made when everyone walked away from the table a little bit unhappy. In the long term, we must create that 3rd way to protect the FHV industry and the gig economy. In the short run, traditional FHV bases must be aware of the developments in the law as it pertains to the operations of their base. The stakes are simply way too high for anyone to ignore the problem any further.