The National Labor Relations Board, handing an important victory to Uber, has concluded that the company’s drivers are contractors, not employees.
The move, outlined by the board’s general counsel in a memorandum released Tuesday, deals a blow to drivers’ efforts to band together to demand higher pay and better working conditions from Uber and its main rival in the ride-hailing business, Lyft. It is the first major policy move the board has made concerning the gig economy under President Donald Trump.
Contractors lack the protection given to employees under federal law — and enforced by the labor board — for unionizing and other collective activity, such as protesting the policies of employers. As a practical matter, the conclusion makes it extremely difficult for Uber drivers to form a union.
The board’s general counsel, Peter B. Robb, who was appointed by Trump, does not have purview over other laws applying to employees, such as minimum wage and overtime protections.
Still, had Robb’s office found that drivers were employees rather than contractors, the decision could have put pressure on the regulators who enforce such laws to reach the same conclusion.
The labor costs of companies like Uber and Lyft would probably rise 20 to 30%, according industry estimates, if regulators or courts forced them to treat drivers as employees. Both businesses have seen their stock prices fall after recent public offerings amid questions about their financial prospects.
The companies appear to be walking a delicate line: Investors and analysts have suggested that the businesses might have to slash their labor costs to become profitable. Drivers frequently complain that pay is already unacceptably low.
Uber lost nearly $2 billion last year, and Lyft lost nearly $1 billion.
“We are focused on improving the quality and security of independent work, while preserving the flexibility drivers and couriers tell us they value,” Uber said in a statement Tuesday.
The memo follows an opinion last month by the Labor Department arguing that workers at an unnamed company with a business model like Uber’s were contractors, not employees.
In both cases, the conclusions reversed the approach adopted by the Obama administration, which had suggested that people who found work through apps were likely to be considered employees. In 2016, the labor board issued a complaint against Postmates, an app-based delivery service, over allegations that the company had interfered with workers’ ability to exercise their labor rights.
The agency could not have issued that complaint without first concluding that Postmates couriers were employees.
The memo released Tuesday, which was dated April 16, has no long-term value as a precedent and can be reversed by a future general counsel. But it carries considerable weight in how the board enforces federal labor law.
The general counsel is the labor board’s chief prosecutor and has authority over whether or not to issue formal complaints against employers, which are analogous to indictments in criminal law. The memo essentially tells Uber drivers and many other gig-economy workers that they should not bother reporting a labor rights abuse to the board because Robb has deemed them to be outside its jurisdiction.
The immediate consequence of the memo is to render moot three formal accusations, filed in different parts of the country, that Uber had violated federal labor law. The memo instructs the board’s regional offices to dismiss the charges if the people who made them do not withdraw them first.
In its analysis, the general counsel’s office listed 10 factors that collectively determine whether a worker is an employee or a contractor, including the extent to which the company can control how the work is performed and whether the company or the worker provides equipment.
But, citing a federal appeals court decision, the memo also said the “animating principle” used to make the determination of contractor status was whether the worker had an opportunity to profit from the activity in the way an entrepreneur would.
“The drivers had significant entrepreneurial opportunity by virtue of their near complete control of their cars and work schedules, together with freedom to choose login locations and to work for competitors of Uber,” the memo stated.
Marshall Babson, a former labor board member appointed by President Ronald Reagan who is now a labor lawyer representing management, said the general counsel’s conclusion had largely been dictated by the limitations of federal law.
While the conclusion may not be satisfying to those who believe the National Labor Relations Act, enacted in 1935, does not reflect the realities today’s workplace, Babson said the board did not have the authority to expand the boundaries of the act on its own.
“Congress has to do it, not the NLRB,” Babson said.
But Wilma Liebman, a board chairwoman under President Barack Obama, said the memo elevated the importance of factors that indicate a contractor relationship, like whether both the company and worker believe the person is a contractor, and underplayed factors that suggest employment, like the fact that drivers perform a function that is central to Uber’s business.
Liebman added that the memo took an extremely permissive view of entrepreneurship, given that drivers cannot set prices or market their personal services to potential customers. The driver’s entrepreneurial opportunities are almost “completely circumscribed by the company’s control of the price,” she said.
Some labor groups insisted that drivers would not be deterred from mobilizing for better treatment, even without the protections of federal labor law.
“Drivers across the globe are organizing and demanding rights,” Bhairavi Desai, executive director of the New York Taxi Workers Alliance, said in response to the memo. “The road may be long and difficult, but one way or another Uber will have to answer to its workers.”