By Steven J. Shanker, Esq.
It has been said that the law must be stable, but it cannot stand still. In New York State, the law regarding who is an independent contractor versus an employee used to be more complicated. There was no set litmus test in New York for a company to determine whether a worker who provides services is an independent contractor instead of an employee. To make this determination, the courts examine various factors to determine if a company exercises sufficient direction and control over the worker in the performance of their job. No one factor is determinative of the issue but control, or lack thereof, over the means of how a person does their job is the most important factor.
This sort of ad hoc adjudication – which was essentially a matter of the Courts looking at the facts on a case-by-case basis and applying all the relevant factors in the analysis – did not give companies much guidance on whether they were compliant with the law.
There is a vast and significant difference between an independent contractor and an employee. An independent contractor has great flexibility to be their own boss by choosing their own hours, days to work, when to take vacations, and even which jobs to accept. Conversely, an independent contractor is not entitled to the many protections the law affords employees.
On the other hand, an employee has almost no flexibility. Companies determine almost all the parameters of an employee’s job, and employees must abide by them. But, by giving up the flexibility that an independent contractor has, the law affords great protections and benefits to employees. This is the sort of trade-off that many people have had to make.
This also makes the stakes very high for companies. If a company is wrong in determining whether a person is an independent contractor, there are serious financial and other consequences.
This sort of dynamic has always been present in the For-Hire Vehicle (FHV) industry. When I came into the FHV industry 20 years ago, the mandate given to me by my first client was to protect their independent contractor model at all costs. In other words, if the base was challenged in its determination that it utilizes independent contractors, we must vigorously fight it in court.
For the past 20 years, I have been fighting these types of cases in court. Each one was a battle, but I won all of them. Over a decade ago, I litigated two cases involving the FHV industry and lost. I then appealed both cases to the Appellate Division of the Supreme Court of the State of New York and won both.
Finally, as of 2013, the law in New York State, as it pertains to whether and under what circumstances FHV drivers are independent contractors, was settled. The cases I won at the Appellate Division were Barak v. Chen, 87 A.D.3d 955 (2nd Dept., 2011) and Chaouni v. Ali, 105 A.D.3d 424 (1st Dept. 2013). Thus, the law was finally settled, or so I thought.
Ever since Uber, Lyft, and Via entered NYC’s 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 FHV base did prior thereto. Remember, the more direction and control exercised by a base over a driver, the more likely a court will find the driver to be an employee. All of a sudden, the Plaintiff’s bar (the attorneys who represent persons injured in car accidents) began arguing that all FHV bases operated like Uber, Lyft, and Via.
Nothing could be further from the truth. Since these three app-based companies have the financial means to settle a vast number of cases for a sum certain before an adverse ruling by a court, they did just that. The app-based companies started to settle as many cases as they could. Most of the traditional FHV bases simply do not have the financial means to do this.
This caused the Plaintiff’s bar to once again start to sue traditional FHV bases and argue that they are no different from Uber, Lyft, and Via. Whether this is true or not is not the point. The point is that the injured persons and their lawyers didn’t care whether traditional FHV bases operated like Uber, Lyft, and Via. They simply wanted to be paid and get money. It is a sort of quasi-legal extortion. Their mindset it this: make a claim that has minimal merit and hope the case settles because the company does not want to take the risk of losing.
What irks me the most is not that the app-based companies changed the legal ramifications for the entire FHV industry, but that, in my opinion, they did not do a very good job in defending their cases. For example, I recently reviewed an ongoing case against one of the three app-based companies. They used my cases (Barak v. Chen and Chaouni v. Ali) to argue in their favor, but they did poorly in their argument. The Judge ruled that the issue of whether the FHV driver was an independent contractor or an employee is one for the jury to determine. I have said many times in the past that while lawyers can be expensive, the cost of a trial is extremely expensive. A company must prove its case before trial, so it does not have to go to trial. Taking shortcuts almost always leads to errors and sometimes corporate disaster.
My first thought after I reviewed the aforementioned case was, “Why did good lawyers make such poor arguments?” Next, I wondered whether those lawyers had any experience in the FHV industry at all. Finally, I asked myself, “Why did the app-based company or their lawyers not call me to consult about the matter?” They used the cases I won in their arguments, and my name is on the cases as counsel of record. I would have gladly helped them for free. Not because I was interested in them winning or losing the case, but because I wanted to preserve the law that helped my clients and was settled by the cases I won at the Appellate Division.
We all know that with all its nuances, rules and various sectors, the FHV industry in New York City is complicated. A lawyer who knows the labor law is important in defense of a case, but a lawyer who knows the labor law and has vast experience in the FHV industry is indispensable. I am not as concerned about my victories going up in smoke, as I am sure that the app-based company will eventually settle the case and not ruin the case law I worked so hard to win. It is the fact that the Plaintiff’s bar has now become reinvigorated to sue any FHV base when its driver is involved in a car accident, and someone is injured. The Plaintiff’s bar is less concerned with the merits of a case but is typically concerned only with their ability to extract a settlement from the FHV base.
So, what does all this mean for traditional FHV bases? In my opinion, it means each FHV base should reevaluate its business operations to ensure it can prevail in arguing that its affiliated drivers are independent contractors. This means that the substance of the relationship must pass what I call “independent contractor muster.” It also means the FHV base must ensure that it has up-to-date contracts with its affiliates. Most importantly, the FHV base must have a plan of action in place with a lawyer and know exactly what it must do if and when they are sued. This sort of risk management is now essential for each FHV base. To do otherwise would be penny-wise and pound-foolish.
All FHV bases should not wait until problems arise to deal with the issues that they now face. Plan ahead and be prepared. Preparation prepares you for the instance when problems arise. Each FHV base should prepare even when there is no legal case to deal with. Keep learning, keep growing, and open your eyes. That way, when the problem comes knocking on your door, you will be ready to deal with it. Always remember what is known as “the 7 Ps” – the Army’s adage for Proper Planning and Preparation Prevents Piss Poor Performance.
