Canadian HR Reporter

CANADIAN HR REPORTER May 16, 2016 INSIGHT 23 US$100-million Uber deal 'game-changer' Presages possible emergence of third classifi cation of worker in gig economy Ride-sharing company Uber recently an- nounced a preliminary US$100-million agreement to settle claims alleging it im- properly classifi es its workforce as independent contractors. Because the settlement involves the foremost business entity in the new gig economy, this is a groundbreaking agreement that could provide guidance to many other emerging businesses that take advantage of the sharing environment. For all other businesses, it serves as a stark reminder of the pitfalls that can result from inap- propriately categorizing workers as contractors. Ins and outs of agreement e litigation fi led against both Uber and competitor Lyft chal- lenged the status of its drivers as independent contractors. A class-action lawsuit fi led in Cali- fornia covered about 240,000 cur- rent and former Uber drivers who wanted additional compensation, including being reimbursed for expenses and tips. A companion case was being litigated in Massachusetts alleging similar facts. e trial was slated to take place on June 20, 2016, and a loss could have cost Uber hun- dreds of millions of dollars. On April 21, 2016, Uber an- nounced it had reached a prelim- inary agreement with the plain- tiff s, fi ling a 153-page proposed settlement agreement outlining the terms of the deal. On the monetary side, the ar- rangement will see the plaintiff s and their attorneys receive a guar- anteed payment of US$84 million, with the promise of an additional $16 million provided the compa- ny's valuation continues to grow through an initial public off ering. e non-monetary portion of the settlement is, in some ways, even more interesting. It will re- quire Uber to alter some of its business practices in such a way that will result in workers being treated more like employees, but will specifi cally ensure workers remain classifi ed as independent contractors. Specifi cally, the deal calls for: "For cause" deactivation: Currently, Uber drivers can be removed from service (or "deacti- vated") for just about any reason, including receiving low scores from riders. Under the agree- ment, Uber will need to demon- strate "suffi cient cause" to release drivers from service and will need to provide a written explanation to the drivers. A low acceptance rate will not satisfy the standard, but reasons involving safety, fraud, discrimi- nation and illegal conduct will. Appeals process and arbitra- tion: If a driver believes the de- activation is improper, the settle- ment agreement permits an ap- peals process overseen by fellow drivers. If not satisfi ed, the driver can initiate an arbitration proceeding that Uber will pay for. Driver association: Drivers will now be able to elect local leaders who will meet with Uber management on at least a quar- terly basis to dialogue about any number of issues impacting the workforce. is association will not be a union and will not have the right to collectively bargain for employ- ment rights or pay. Although the National Labor Relations Board might not approve of this ar- rangement and claim it violates the National Labor Relation Act's prohibition on meet-and-confer associations, Uber can point out that the drivers are independent contractors who cannot use the act as a weapon against them. Tips: e agreement will en- sure drivers have the opportunity to collect tips from riders. While Uber users will still be told tipping is neither expected nor required, customers will also be told tips are not included in payments and drivers will be able to put up signs or otherwise request tips from riders. e deal must be approved by the federal court in order to be fi - nalized, and the court is currently reviewing the agreement to en- sure fairness to all involved. However, assuming the deal is permitted, it will signal a sea change in the way gig economy employers interact with workers. What does deal mean for gig economy employers? Quite simply, this deal is a game- changer. It provides a blueprint for a possible path towards peaceful co-existence with workers with- out the specter of a class-action lawsuit hanging over their heads at all times. While employing some varia- tion of these same types of non- monetary provisions with your workforce may not prevent a lawsuit from landing in your in- box, they may go a long way to- wards demonstrating to workers you want to cater to some of their wishes, which could forestall legal action before it even emerges. From a bigger picture perspec- tive, this deal further presages the possible emergence of a new third classifi cation of worker that re- fl ects the reality of working in the gig economy in the 21st century. Modern businesses have long bemoaned the fact the current legal standard is based on a 20th century legal test and calls for sorting workers in one of only two categories: either employees or independent contractors. As some legal scholars have pointed out, when it comes to sharing economy business mod- els, this is sometimes like trying to take a square peg and jamming it into either one of two round holes. As a possible solution, some have called for the recognition of a hybrid third category, the "dependent contractor" or "in- dependent worker." is worker would have characteristics of an employee while retaining the in- dependence of a contractor, per- mitting both worker and business the necessary fl exibility to remain nimble in the modern business environment. While this settlement agree- ment does not alter existing law or create such a legally binding category, it is a defi nite step in the right direction. Government regulators and elected legisla- tors will take notice of this pro- posed solution and could see it as a model for developing laws covering gig economy working relationships. What does deal mean for other employers? For traditional businesses not in the sharing economy, this deal is a good reminder that the law favours workers being classified as something other than independent contractors. If it is a close call, a court or government agency examining your business will probably consider your workers to be employees, entitled to all the rights and benefi ts the law (and your policies) allow. Just last year, the U.S. Depart- ment of Labor issued an admin- istrator's interpretation aimed at addressing what it character- ized as the "problematic trend" of misclassification, sending a signal that these cases will be an enforcement priority for the fore- seeable future. e risks associated with mis- classifi cation are great, and most companies do not have a spare US$100 million in their litigation budget that would solve a class- action lawsuit. For most compa- nies, it is better to avoid a claim in the fi rst place than to have to ne- gotiate a blockbuster settlement agreement. Both practising at law firm Fisher & Phillips, Richard Meneghello is a partner based in Portland, Ore., and John Polson is a partner based in Irvine, Calif. is overview originally appeared at www.laborlawyers.com. Presages possible emergence of third classifi cation of worker in gig economy Presages possible emergence of third classifi cation of worker in gig economy Ride-sharing company Uber recently an- nounced a preliminary US$100-million agreement to settle claims alleging it im- Presages possible emergence of third classifi cation of worker in gig economy Richard Meneghello and John Polson GUest CoMMentarY Terminating employees on job-protected leave If an employer has to cut a worker's job, how should it proceed to avoid liability? Question: If an employer has to cut the job of an employee who is on a job-protected leave due to unavoidable fi nancial reasons, how should it proceed to avoid liability? Answer: Employers are entitled to eliminate positions due to bona fi de business reasons — even po- sitions held by employees who are on leaves protected by employ- ment standards legislation, such as maternity leave and compas- sionate care leave. It is critical, however, that the employer is able to prove the elimination of the position is for a bona fi de reason, such as an economic downturn, and not for any reason related to the fact the employee is on a protected leave. If a worker brings a complaint that the elimination of her po- sition was discriminatory, in many provinces the onus is on the employer to show there was no discriminatory reason for the dismissal. It is therefore essential that be- fore a position is eliminated, the employer ensures it can identify and produce the business records that demonstrate the fi nancial need for the decision to abolish a job. A job that is eliminated due to a fi nancial downturn is still a dis- missal without cause under em- ployment standards legislation and the common law. As such, an employer is required to provide notice of termination or pay in lieu of notice. For employees who are on a statutory leave, such as parental leave or compassionate care leave, notice of termination cannot run concurrently with the job-pro- tected leave. Practically speaking, this means the employee must be allowed to complete his leave and pay in lieu of notice must be provided at the conclusion of the leave, assuming the job was abolished during the leave. A best practice for employers that need to eliminate the job of an employee on a protected leave is to advise the employee as soon as possible to give her a fair op- portunity to consider new job op- portunities while on leave. At the same time, advise the employee that he will be provided with pay in lieu of notice at the conclusion of his leave (again, as- suming the job is abolished before his leave ends). While employees are entitled to minimum statutory pay in lieu of notice upon their termination, they may also be entitled to addi- tional pay in lieu of notice under the common law. In such cases, I recommend obtaining a general release for any severance paid in excess of the statutory minimum. e release is best executed by the employee at the conclusion of the statutory- protected leave. For employees who are on a dis- ability leave that is not protected by legislation (for example, long-term disability that exceeds the period of time protected by legislation), an employer can provide notice of termination while the employee is on leave. at notice can run con- currently with the leave. Meghan McCreary is a partner prac- tising labour and employment law at MacPherson Leslie & Tyerman in Re- gina. She can be reached at (306) 347- 8463 or mmcreary@mlt.com. Question: If an employer has to cut the job of an employee who is on a job-protected leave due to unavoidable fi nancial reasons, how Meghan McCreary ToUghest HR QUestion Employees may also be entitled to additional pay in lieu of notice under the common law.

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