Hunton Employment & Labor Perspectives

In an unusual ruling, Pennsylvania federal judge Michael M. Baylson (i) invoked a court’s inherent powers to manage its docket in dismissing with prejudice a long-running collective action lawsuit against Uber Technologies, Inc. (“Uber”) but also (ii) awarded—after a second hung jury—victory to Uber on the merits by granting its Rule 50(b) motion for judgement as a matter of law. Razak, et al. v. Uber Techs, Inc., et al., No. CV 16-573, 2024 WL 3584324, *1 (E.D. Pa. July 30, 2024). Finding that the years-long dispute over driver misclassification “simply does not comport with the nature of the gig economy” and that continued litigation would be futile, the Court decided, among other things, that continued litigation would waste judicial resources. Id.

The plaintiffs’ attorneys have vowed to appeal both of Uber’s victories. Indeed, a finding in the Plaintiffs’ favor would obligate Uber to pay drivers minimum wage and overtime on a collective action basis, and result in a potentially massive payout for Plaintiffs’ attorneys. 29 U.S.C. § 216(b).

But according to Uber’s attorneys, dismissal was a long time coming. The plaintiffs’ lawsuit against Uber has spanned almost nine years of litigation, including Judge Baylson’s initial grant of summary judgment in Uber’s favor, the Third Circuit’s subsequent reversal, and two jury trials, each ending in a hung jury. Razak, 2024 WL 3584324 at *1. With the Plaintiffs having failed twice to meet their burden of proof at trial, it would be prejudicial to deny Uber finality and subject it to yet another jury trial, even if Uber’s victory on the merits would otherwise be overturned. See Memorandum of Law In Support of Motion for Judgement As a Matter of Law (“Uber’s Rule 50 Memo”), ECF 341-1 at p. 7, Razak v. Uber Techs, Inc. 2:16CV00573 (E.D. Pa. July 1, 2024).

The case revolves around whether UberBLACK drivers are properly classified as employees or independent contractors. In Pennsylvania, this determination is made by balancing two legal tests: the six “economic reality factors” which govern misclassification under the Federal Labor Standards Act (“FLSA”) and the Pennsylvania Minimum Wage Act (“PMWA”), and related ten factors that guide the same inquiry under the Pennsylvania Wage Payment and Collection Law (“WPCL”).

The six factor “economic reality” test is as follows:

1. the degree of the alleged employer's right to control the manner in which the work is to be performed;
2. the alleged employee's opportunity for profit or loss depending upon his managerial skill;
3. the alleged employee's investment in equipment or materials required for his task, or his employment of helpers;
4. whether the service rendered requires a special skill;
5. the degree of permanence of the working relationship; and
6. whether the service rendered is an integral part of the alleged employer's business.

Donovan v. DialAmerica Mktg., Inc., 757 F.2d 1376, 1382 (3d Cir. 1985) (internal citations omitted). By contrast, the broader 10 factor test is as follows:

1. the control of the manner that work is to be done;
2. responsibility for result only;
3. terms of agreement between the parties;
4. the nature of the work or occupation;
5. the skill required for performance;
6. whether one employed is engaged in a distinct occupation or business;
7. which party supplies the tools;
8. whether payment is by the time or by the job;
9. whether the work is part of the regular business of the employer; and
10. the right to terminate the employment at any time.

Williams v. Jani-King of Philadelphia Inc., 837 F.3d 314, 321 (3d Cir. 2016) (internal citations omitted).

These factors can be notoriously difficult to weigh. In the case of the drivers, Uber expressed confidence that the drivers owning their vehicles, setting their hours, providing transportation services outside of Uber, and choosing their own assignments should win the day. See, e.g., Uber’s Rule 50 Memo, ECF 341-1 at pp. 10-18, Razak v. Uber Techs Inc. 2:16CV00573 (E.D. Pa. July 1, 2024). They also argued that Uber is fundamentally a technology company, not a driving company. Id. at 18. However, Plaintiffs’ attorneys argued that Uber’s right to terminate drivers for specific infractions, control over the platform’s fee structure, and investment in the platform relative to drivers, coupled with drivers’ lack of specialized skills, importance to Uber’s business model, and relative permanence in working with Uber meant that Plaintiffs were entitled to win. See, e.g., Opp. to Defendant’s Rule 50 Memo, ECF 349 at pp. 7-18, Razak (E.D. Pa. July 11, 2024).

Following the close of discovery, Uber successfully moved for summary judgement, persuading Judge Baylson that the Plaintiffs could not meet their burden of proof. Razak v. Uber Techs., Inc., 951 F.3d 137, 142 (3d Cir.), amended, 979 F.3d 192 (3d Cir. 2020). But the Plaintiffs successfully appealed to the Third Circuit, which said that there were too many factual disputes over Uber’s control over drivers, drivers’ opportunities for profit or loss, and the permanence of the working relationship to permit resolution without trial. Id. at 145-47. Uber then appealed to the Supreme Court, which denied certiorari to hear the case. Uber Techs, Inc. v. Razak, 141 S. Ct. 2629 (2021).

Eventually, the case headed to a jury to determine the threshold issue of whether UberBLACK drivers were employees. Razak, 2024 WL 3584324 at *2-3. At the close of evidence, the jury quickly deadlocked. Id. at *3. Hoping to salvage the situation, Judge Baylson sent the jurors supplemental verdict forms which listed the 16 factors set forth above, and asked them to decide on an individualized, factor-by-factor basis which litigant should prevail. Id. The result was that a majority of the jurors sided with Uber, while a small but adamant minority sided with the Plaintiffs. Id. Both parties moved for judgement as a matter of law post-trial, which Judge Baylson denied, and the case was scheduled for another trial. Id.

At the subsequent trial, Plaintiffs presented essentially the same case-in-chief. Id. Defendants, however, changed their strategy by highlighting extensive local regulations surrounding drivers in Philadelphia in hopes of showing that the “control” Uber allegedly exerted over drivers was caused by local law, rather than Uber’s own preferences. Id. at *3-4. Despite this strategy, the jurors from the second trial again deadlocked. Id. at *4. Judge Baylson instructed them to fill out their supplemental verdict forms containing the 16 factors collectively, showing areas of agreement. Id. The result was that the majority of factors were left blank, showcasing the jury’s inability to agree over their application. Id.

Uber moved for the Court to declare a mistrial and dismiss the action with prejudice according to the Court’s inherent authority to manage its docket, and both parties moved for judgment as a matter of law on the merits. Id. at *4-5. Judge Baylson granted both of Uber’s motions. Id. at *1, 16.

Regarding the first, Judge Baylson noted that, while the administrative power to manage a docket is far-reaching, it should only be used in “extreme circumstances,” such as when a case is frivolous and permitting a plaintiff to continue would be futile. Id. at 9. As this case was not frivolous, the question for the Court became:

whether a district court has the inherent authority to dismiss an action where, as here, futility flows not from the frivolousness of the core allegations in the complaint or a plaintiff’s failure to prosecute, but instead from an obvious stalemate.

Id. at 10. Stating that “no single litigant has the right to continuously monopolize a district court’s docket in this manner,” and noting the considerable judicial resources had been expended on this case to date, the Court concluded that the case must end. Id. Even while complimenting the efforts of Plaintiffs’ counsel, the Court determined that it would not permit further efforts to proceed at the expense of Uber, the Court, and the community. Id. at 14.

Regarding the motion for judgment as a matter of law, even though the parties were in an “obvious stalemate,” id. at 10, the Court determined that Uber’s successful efforts at showcasing local Philadelphia regulations in the second trial undermined Plaintiffs’ control theories so thoroughly that “the Court is not at all convinced a reasonable jury could find for Plaintiffs.” Id. at 17 (emphasis added). Taking a close look at five of the factors—right to control, opportunity for profit or loss, investment in equipment or materials, degree of permanence, and special skills—the Court ruled that Uber should win as a matter of law. Id.

Although Uber has prevailed (pending appeal), its near-decade of collective action litigation serves as a cautionary tale for companies which routinely engage, or are structured to operate using, independent contractors. Classifying workers as independent contractors carries benefits, but also substantial risks which may make certain companies attractive targets for plaintiffs’ attorneys. Further, when independent contractors are retained, it is critical to ensure that companies do not exercise undue control or influence over their independent contractors’ operations, depending on the fact-specific circumstances applicable to the relationship. Finally, certain jurors may be likely to side with alleged independent contractors, even if a court believes it is unreasonable for them to do so. Companies are advised to consult experienced counsel in determining whether to classify individuals as employees or independent contractors in various scenarios, and may wish to consider the benefits of periodic reassessments of classifications.