I have said for the past 20 years that it is crucial to defend unemployment claims as if your company’s life depended upon it. Unemployment is generally short-term benefits paid by the state to an individual who is let go from their job due to no fault of their own. The issue up for discussion is whether a for-hire vehicle (FHV) driver is entitled to unemployment benefits when they are disaffiliated or deactivated. The answer to this issue turns on whether the New York State Department of Labor (DOL) determines a driver to be an independent contractor or an employee. When a base utilizes independent contractors, it is not required to pay for unemployment benefits because only company employees are entitled to them. However, not all FHV drivers are determined by the DOL to be independent contractors.
If the DOL determines that one driver is an employee and not an independent contractor, then the base must make unemployment contributions for not only the driver who filed the claim but for all others “similarly situated.” In other words, if a base loses a claim for unemployment to one driver, it must pay for all drivers going back for up to six years from the date of the claim in question and all drivers moving forward. While it can be proven that not all drivers are similarly situated, such an undertaking is difficult, time-consuming, and expensive. In the past, for some bases, losing an employment claim caused them to be forced to shut down their business. The issue is literally that serious.
Let me put this into the context of recent events. Various news outlets have reported that under the terms of a settlement between Uber/Lyft and the New York Attorney General’s office, Uber will pay $290 million, and Lyft will pay $38 million into two funds that will pay out claims to approximately 100,000 current and former FHV drivers in New York State. Of course, neither Uber nor Lyft admitted to any fault. So, let’s discuss how we got here.
Back in 2013, an Uber driver was permanently deactivated due to repeated issues with low ratings and feedback received from riders. The driver filed a claim for unemployment benefits. Uber denied the claim by alleging that they were not an employer but merely a technology platform that connects riders to drivers. The DOL made an initial determination based on a review of written submissions from Uber and the driver. The DOL’s initial determination was that the driver was an employee, and thus, Uber was liable for unemployment contributions effective as of the 1st quarter of 2013 based on remuneration paid to the driver and to any other individual similarly situated as a driver.
Uber then requested a hearing before an Administrative Law Judge (ALJ) to contest the initial determination of the DOL. A hearing was held, and ultimately, the ALJ found that the credible evidence established that Uber exercised sufficient supervision, direction, or control over the driver and determined that the driver was an employee and not an independent contractor.
Uber then appealed the decision of the ALJ to the New York State Unemployment Insurance Appeal Board (UIAB). In 2018, the UIAB sustained the determination of the ALJ and overruled Uber’s objection. Uber then appealed the decision of the UIAB. Such appeal was taken to the Appellate Division in the 3rd Judicial Department. In December 2020, the Appellate Division issued a decision stating that evidence supports the finding that Uber exercised sufficient control over the drivers to establish an employment relationship. The court found that Uber controls the drivers’ access to their customers, calculates and collects the fares and sets the drivers’ rate of compensation. Drivers may choose the route to take in transporting customers, but Uber provides a navigation system, tracks the drivers’ location on the app throughout the trip and reserves the right to adjust the fare if 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” and a “fun atmosphere in the car.”
For the better part of the past three years, in order to limit its financial liability, Uber has attempted to claim that not all of its drivers are “similarly situated.” Also, for the better part of the COVID-19 pandemic, the DOL had other, better things to do than to fight Uber over what the DOL claims Uber owed to the State. To be blunt, there was also a bit of a “stall game” going on. In other words, the longer one stalls a settlement, the more likely the other side (the DOL) is willing to accept less than the total amount due. Also, the issue of how Uber would fund a settlement and pay for such benefits going forward was unknown and undetermined.
So now, as the end of 2023 draws near, Uber agrees to this massive settlement. But in the end, is it really a massive settlement? Let’s do some basic math: $290 million dollars per year over ten years is $29 million per year. If one considers approximately 75,000 drivers per year, then this is an average of $387 per driver per year. Now that Uber claims to be profitable, it can afford to settle the case to get the State of New York, the proverbial albatross, off its neck and move forward. Also, Uber can build these costs into its services moving forward. Either the consumer will pay for it with each trip, or Uber will eat the costs as a cost of doing business. After all, New York City is Uber’s most profitable market. So, it made good business sense to settle the case and move on.
So, what does this settlement mean for the average black car and livery base in New York City? In theory, it does not change anything because the claim only applied to Uber (and Lyft to a smaller extent). In reality, Uber’s loss in this case, and the many other losses that have followed since, has made every ALJ who hears a case in the FHV industry think that every black car and livery base operates like Uber. We know this is not the case, but ALJ’s and the UIAB must decide similar cases the same way or explain the departure.
In the past, I personally defended numerous black car and livery bases in unemployment claims. Before the advent of Uber, I educated the ALJ’s on what the FHV industry is and how it operates. They always bought my arguments because there was little to no adverse case law. Now, the DOL and the ALJ’s who hear these claims are well-versed in the FHV industry. They believe that every base operates like Uber. So, instead of being able to prove our case by showing that a black car or livery base does not exercise sufficient direction and control over its drivers, we are now forced to show why a non-Uber black car or livery base does not operate like Uber. In the minds of an ALJ, why would a base not want to operate like Uber?
This does not mean that a non-Uber black car or livery base can’t defend itself if and when an unemployment claim is filed by a driver. It does mean that it will be an uphill battle, and a costly one, when such claims are filed. That is why I have said, time and time again, that it is important to review your business operations with a lawyer who is familiar with the FHV industry. Some adjustments may need to be made to your base’s business operations to try to limit your potential liability. Everyone has exposure.
At the very least, a base owner should want to know what potential exposure it has of being found to be an employer of the drivers it sends dispatches to. You must be well-versed in how to prove that in the context of your business operations, a driver is not an employee. Each base operates a bit differently than one another, but the overall industry is the same. Riders must go through a licensed base to get a dispatch. A driver cannot legally transport a person for hire in NYC unless that happens. These rules are mandated by the NYC Taxi & Limousine Commission (TLC) and not the base. The degree of direction and control exercised over the driver by the base, above and beyond the TLC rules, is the key.
That is why I recommend what I call “preventative medicine for a FHV base.” Have an internal audit of your base conducted by someone well-versed in the FHV industry, with specific experience in labor and employment laws. Determine what aspects of your base operations may be changed, not to disrupt your business but to help your base defend an unemployment claim if and when one is filed by a driver. While Uber is the big fish in the sea, the DOL likes small fish, too. No base is immune from such a claim. This type of evaluation must be done before a claim is filed or before you receive notice of an audit. Better to take my two cents of free advice now by taking proactive steps to protect your business. Once a claim is filed, it is typically too late to get a “re-do.” Do not be penny-wise and pound-foolish. Uber lived to tell the tale. The real question is whether you, as a base owner/operator, can withstand the weight of the State of New York coming down on your company.
