Uber is a well-known example of a company operating in the on-demand economy. Hundreds of on-demand companies provide services such as grocery shopping, household cleaning, concierge services, and delivery of household items. The on-demand economy (also referred to as a platform, gig, or sharing economy) is generally characterized by the use of technology to deliver goods and services to users "on demand." Demand is satisfied using websites and apps that connect users with transportation, accommodations, food delivery, and more.

Workers who deliver the goods and services are often independent contractors who can accept or reject work opportunities (or "gigs") based on their own schedule and availability. Uber's platform connects people who need rides with drivers who are willing to pick up and drop off those individuals in the drivers' own cars. Independent contractors are a major component of the on-demand economy because companies like Uber rely almost exclusively on contractors to deliver the services customers request.

On April 21, 2016, the parties in O'Connor v. Uber Technologies Inc., No. C–13–3826 EMC (N.D.Cal.) and Yucesoy v. Uber Technologies Inc. No. C–15–0262 EMC (N.D.Cal.), both misclassification cases brought against Uber under California and Massachusetts labor law, filed a motion for preliminary approval of a $100 million settlement on behalf of 385,000 Uber drivers. The leading O'Connor case was filed on August 16, 2013 on behalf of individuals who have used the Uber software application as drivers. The case alleged that drivers had been misclassified as independent contractors and therefore denied reimbursement of their necessary business expenses under Cal. Labor Code § 2802. The O'Connor plaintiffs also brought a claim under Cal. Labor Code § 351 (enforceable through the California Unfair Competition Law, Cal. Bus. & Prof. Code § 17200 et seq. (UCL)), alleging that Uber had advertised to its customers that a gratuity is included in the fare, but Uber did not remit the gratuity to the drivers. The plaintiffs in the Yucesoy case brought identical claims, in addition to state-based claims on behalf of Massachusetts drivers.

As well as the monetary settlement, Uber has agreed to significant changes to several of its business practices in both California and Massachusetts, including:

There is no single, established definition of independent contractor under California or Massachusetts law. Various tests are applied depending on the situation to determine whether an individual is an employee or an independent contractor for purposes of wage and hour, workers compensation, and unemployment insurance laws. The same individual may be deemed an employee in one context and an independent contractor in another context. Employers should be well versed in both federal and state laws before deciding to enter the on-demand space.

While it can be advantageous for both parties, independent contractor classification involves exposure to liability in several areas, including potential liability for years of unpaid overtime pay, taxes, and employee benefits. The following Practical Law resources provide guidance to companies that engage independent contractors:

For more information about wage and hour laws generally, see: