The Importance of Correctly Classifying and Screening Your Workers

January 13, 2014

Last year, we featured several articles about California's ride-sharing startups. Ride-sharing companies, such as UberX, Lyft, and Sidecar, are in the business of providing vehicles-for-hire. Using apps and other online programs, the companies connect those in need of rides with non-professional drivers driving their own cars. Two of the companies are making headlines, and the news is not so good. According to PandoDaily — the site of record for Silicon Valley — last month, a San-Francisco based Uber driver, Daveea Whitmire, allegedly verbally and physically assaulted one of his passengers who recorded some of the incident on his iPhone. Uber refused to investigate the matter, and insisted that Whitmire had passed the company's standard background checks. Whitmire's account has since been deactivated by Uber and evidence has emerged that Whitmire was a convicted felon.

Since Uber entered the market, its drivers have been accused of improper conduct at least three other times. The most recent incident involving an Uber driver occurred on New Year's Eve, when an Uber driver hit and killed a 6-year-old girl who was crossing the street with her mother and brother. Uber instantly denied culpability. According to PandoDaily, "[i]n nearly all of [the] cases, Uber has responded in the same way, saying it's not responsible for the conduct of its drivers." In response to its decision not to investigate, Uber states that "we're a technology platform that connects riders and providers, so it's not our job to investigate." Several Lyft drivers also have been accused of improper conduct, but, unlike Uber, the company apologized to its passengers and promised to investigate the situations; however, just like Uber, Lyft contends that it is not liable because it is merely a "technology platform."

Uber and Lyft contend that they cannot be held liable for the drivers' actions because their drivers are not employees but independent contractors. Last August, two Uber drivers filed a class-action lawsuit against the company, claiming that it is stiffing driver's on tips. The suit addresses the very issue of worker misclassification and seeks recognition that Uber drivers are employees rather than independent contractors. Are Uber and Lyft correct when they say that they cannot be held liable for the actions of the drivers? Can they be sued for negligent hiring or vicarious liability? Even though we will not know the answers to these questions until a court rules, the headlines discussed above raise very important issues for startups and small businesses regarding the classification/misclassification of workers as employees or independent contractors and the importance of properly screening individuals before hire.

The IRS defines an "independent contractor" as "[a] business owner or contractor who provides services to other businesses." There are other definitions, but this one will suffice for purposes of this article. Many small businesses rely on independent contractors to fill their staffing requirements because it saves labor costs; reduces the company's liability; and, allows more flexibility in hiring and firing. But, misclassifying an individual as an independent contractor when he/she performs as an employee can result in significant legal consequences. Additionally — and depending on your business — failing to properly screen individuals and perform proper background checks may also subject your company to costly legal consequences. As PandoDaily points out in its article about Uber and former driver Whitmire, "background checks vary widely in quality, scope, and validity." And, rest assured: a bad hiring decision can come back to haunt your small business. Next week, we will discuss what small businesses should know about screening applicants and current employees.

The Law Office of Kristina M. Reed is committed to helping startups and all small businesses achieve their dreams by providing the foundation needed for success. Our goal is to help you grow into a successful business. We are highly experienced in all phases of business law, from startup to profitability, and we can help guide your young company through all phases of its growth and success. If you need assistance with worker classification or have questions about your present worker-classification scheme and whether and what kind of worker screening your company should perform, please contact us. We are here to help.