Sharing Economy May Mean Sharing Liability

The “sharing economy” is a marketplace where people offer for rent goods or services that they own.  To date, the peer-to-peer (“P2P”) sharing model spans across multiple industries offering consumers the ability to share access to a dress (rent the runway), a WiFi connection (Fon), a bicycle (Liquid), a car (Uber, Lyft, SideCar) and even a home (Airbnb)—just to name a few.

As the sharing economy grows in size and popularity, questions about where legal liability should—or will—fall when a tort occurs become more complicated.  One factor contributing to the uncertainty about the legal landscape is that it remains unclear whether companies providing sharing-economy technology hire employees or independent contractors to operate their services.  Defining this legal relationship is important because employees and independent contractors are treated differently under the law.  For example, employees—unlike independent contractors—may pass liability on to their employers under a legal doctrine, respondeat superior, which holds an employer responsible for an employee’s wrongdoing committed within the course of her employment.  By contrast, engaging an independent contractor generally shields companies from liability because the individual tortfeasor is held personally responsible.

One sub-group of the sharing economy that has already seen a high volume of lawsuits claiming that technology companies are employers—as a means to hold them responsible in place of the individuals personally committing torts—is the ride-sharing industry.  In the past twelve months, ride-sharing companies have faced individual suits and class actions alleging a variety of causes of action from negligence, negligent hiring and false imprisonment to violations of the federal Americans with Disabilities Act.

To date, no bright-line rule exists to define employment status for companies in the sharing economy.  Courts often ignore a party’s self-identification as an employee or independent contractor and instead engage in fact-intensive inquiries that examine the level of control the employer has over the other party.

It is no surprise, then, that companies are seeking ways to operate their businesses at arm’s length to enhance arguments that they merely provide an application that functions through the third-party participation of independent contractors, thus shielding them from potential liability.   However, to operate in many jurisdictions, ride-sharing companies must adhere to strict local and state regulations.  Their adherence to these regulations is exactly the type of fact plaintiffs are pointing to as proof that they are engaged in an employer-employee relationship with drivers.  For example, ride-sharing companies are promising state and local governments that they will run background checks on drivers, provide training and safety manuals, and interact with customers directly to prevent drivers from later harassing riders.  With each promise of increased involvement, arguments supporting the legal relationship of an independent contractor are weakened.

Interestingly, the issue of employment status is also playing out in litigation between ride-sharing companies and their drivers.  Recently, two federal district courts in California denied summary judgment on the issue of whether plaintiff-drivers for ride-sharing companies are independent contractors or employees as a matter of law.  See O’Connor v. Uber Technologies, Inc., 2015 WL 1069092 (N.D. Cal. 2015) and Cotter v. Lyft, Inc., 2015 WL 1062407 (N.D. Cal. 2015).  Plaintiffs in the two putative class actions argue that the ride-share drivers are misclassified as independent contractors, and thus are denied statutory protections offered to employees under California law.  In O’Connor, Plaintiffs specifically point to the California requirement that no employer should deduct or collect any gratuity left for an employee by a patron.  (See  Cal. Lab. Code § 351).  Both judges concluded that the legal standard for determining whether an individual is an independent contractor or an employee is a mixed question of law and fact; according to the courts’ March orders, these factual issues should be determined by juries.  (See Uber Order; Lyft Order).

By and large, any jury verdicts in these two cases will have limited precedential value and will likely contribute to increased lawsuits.  First, the proposed classes are restricted to drivers in California, meaning that results will not have direct national implications.  Second, it is possible that the two California juries examining nearly identical cases could reach conflicting conclusions about the employment status of ride-sharing drivers.  Lastly, given that both cases are jury trials, any verdict would not be accompanied by a comprehensive judicial opinion that may help to define the legal landscape  A judicial opinion, preferably from an appellate court, would be particularly useful in this context to identify legal factors better-suited for defining employment status in the technology-driven sharing economy.

We will continue to monitor the sharing economy landscape as it continues to develop.