The Sharing Economy in the Slack Space

I recently started using Slack, which is an instant message service that allows me to work with remote teams very efficiently and transparently.  Everyone sees what everyone else is talking about and doing. Some people find this liberating, others may find it terrifying. So far it's working well for me.  I always favor transparency and I’m not a big fan of hierarchy.  Slack maximizes transparency and minimizes hierarchy. 

When I first heard the name of the service, “Slack,” I snickered.  We lawyers use the term “slack space” to refer to electronic stored information (“ESI”) that is delated but not overwritten, meaning it can be recovered with a little forensic detective work.  When litigation looms, lawyers are required to advise the client to preserve ESI that may be in their servers’ “slack space.” Courts are pretty strict about this.  When a lawyer does not become knowledgeable about a client’s ESI and important ESI is lost, a client can lose a case and the lawyer sanctioned.  As an aside, nothing really falls into the slack space of cloud based services like Slack or Gmail, a subject for a different post.

Because ESI preservation is important to lawyers, the courts, and the smooth administration of justice, a pretty definite set of rules regarding the preservation and treatment of ESI was has been  established.  Each time the technology changes, lawyers and courts find a way to quickly determine, with certainty, our responsibilities. The courts make decisions (with some prodding) and explain their reasoning.  So when it comes to ESI, everyone knows what is expected of them, and everyone can either comply, or take the risk of non-compliance.  I often assume that when information is “lost,” the client and lawyer on the other side decided that risking a sanction was better than revealing whatever that ESI had to say. That is how some lawyers think.  In any event, certainty is a welcome form of transparency.

That brings me to two decisions that came out of the Northern District of California which took a look at a rapidly evolving space and, instead of providing certainty, made things even more unpredictable.  The cases concern the employment status of drivers for the ride sharing services Uber and Lyft and can be found here and here. Inevitably, a few of the drivers challenged Uber’s and Lyft’s treatment of them as independent contractors, rather than employees.  The distinction is key, since employees are entitled to minimum wage, overtime and, the case of Lyft, the right to keep all their tips rather than needing to pay a percentage back to management.

The decisions are interesting because they came from two different judges on the same day.  Each reviews the same California law and applies the various factors courts find determinative of employment relationships to the respective defendants’ operations. It makes for fascinating reading for employment lawyers.

But then things get weird.    Everyone assumed the issue would be decided by the court, which is why they all asked the court to decide the issue when they did (in its case, Uber asked the court to make a decision and, in Lyft case, both the plaintiffs and Lyft asked the court to make the decision -- the plaintiffs had the same lawyers in both cases).  In fact, on page 16 of the Uber decision, the court notes that “Both parties suggest that the employee/independent contractor question is one of law for ultimate resolution by the Court.”  You can bet that the lawyers did not agree about much  else. Both judges, however, disagreed, and declined to rule on the employment status of Uber and Lyft drivers.  Both judges plan to send the issue to the jury.

My personal bias is to find that low skilled workers in low skill industries like taxi driving are employees.  The contracting model favors the employer too much and leaves too much room for abuse.  In a future post, I’ll try to make some time to compare and contrast the courts’ application of the law concerning employment status in the Uber and Lyft cases, and compare it to cases regarding the status of traditional car services (like this).

My biases aside, the courts’ failure to decide this issue in both cases is the worst possible outcome.    Uber and Lyft certainly don’t want to pay damages here, but they also don’t want to be operating a rouge service, exposing themselves to additional liability, so they would change their business model if they had to. I doubt Uber and Lyft have any desire to employ tens of thousands of drivers, so it would be a pretty significant change. The plaintiffs don’t want to continue to prosecute a losing case, either.  This also could have been a valuable teaching moment if one service’s model created an employment relationship, while the other allowed drivers to be classified as independent contractors.  What everyone really wants is certainty.

Now the jury will decide, in time. Juries are notorious unpredictable.   But the problem is more profound: juries never have to provide their reasoning so we will never really know the reasoning behind the jury’s decision to classify Uber and Lyft drivers as employees or independent contractors.  That’s no way to run a sharing economy.

The stakes are high: dozens of online businesses are perfecting business models that involve people with extra resources getting matched up magically with people who need a service.  Are those service providers considered employees or contractors? And how can the company assure they are considered one or the other?

Maybe the judges did not want to wade into the controversy.  May be they assumed that the stakes are high enough that the parties will settle before the jury needs to decide the issue. Or maybe they did not appreciate the stakes.  

I guess we can only wish we were in the slack space.