SC Court Signals That Uber Business Model Probably OK in the Palmetto State

E-businesses like Uber and Lyft, which utilize smartphone or tablet apps to connect passengers and drivers with vehicles for hire are beginning to carve out a niche within the economy. As I mentioned in an earlier post, the Uber/Lyft business model is under attack in California, the spawning ground of so many technology startups. As I also reported in a post last week, other states appear to be more business friendly. Indeed, proposed legislation in Alaska would clarify that in that state Uber and Lyft drivers would be excluded from coverage under Alaska’s Workers’ Compensation Act, in much the same way that casual laborers and part-time baby-sitters are currently excluded. Somewhat similarly, the Court of Appeals of South Carolina, in Ferguson v. New Hampshire Ins. Co., 2015 S.C. App. LEXIS 56 (Jan. 13, 2015)—a case in which neither Uber or Lyft were parties—signaled that the Uber/Lyft business model should have little trouble in the Palmetto state.

eMove a subsidiary of U-Haul

The controversy involved eMove, Inc., a business owned by the more familiar U-Haul International. In short, eMove operates an internet marketplace where individuals or businesses renting moving trucks can search for and hire local moving companies to assist with loading and/or unloading services. eMove contracts with local moving companies to provide the loading and unloading services. eMove customers sign up for the moving service on its web-site and select the moving company of their choice. eMove then sends a text message to the moving company informing them of the customer’s booking information. After the job is completed, eMove releases the customer’s payment for the services to the moving company, keeping 15 percent of the total amount paid by the customer for its services.

Unterkoefler executed a contract with eMove in March 2009 to provide moving help to eMove’s customers. Unterkoefler provided a labor service to his customers and did not have a moving truck or equipment. He used rental moving trucks, blankets, dollies, and other items supplied by his customers. He set the days and times he would perform moving services and set his own rates, times, and coverage areas. Unterkoefler operated the moving business himself, and when he could not complete the job on his own due to the size or having multiple jobs at the same time, he asked for help or gave the job to someone else. He paid whomever he worked with per job in cash.

Ferguson was working part time for Unterkoefler on August 21, 2010, when he injured his right hand while moving a washer/dryer unit. He had helped Unterkoefler on some 10 to 15 moving jobs between April/May 2010 and August 2010 and he worked with three other movers at various times. Ferguson sought workers’ compensation benefits for the injury, but the single commission dismissed the case, finding that Ferguson had not established that either (a) that he was an employee of Unterkoefler, or (b) that eMove was his statutory employer.

The statutory employer issue was of particular importance because evidence also showed that Unterkoefler employed fewer than three workers, making Unterkoefler’s business exempt from the requirement that he provide workers’ compensation coverage for the employees. Unless eMove was Ferguson’s statutory employer, he would not be able to recover workers’ compensation benefits. The Panel affirmed the single commissioner’s decision and Ferguson appealed.

Was eMove Ferguson’s statutory employer?

The appellate court turned to S.C. Code § 42–1–400 to determine eMove’s status as a statutory employer. The court observed that under the statute, two questions required answers:

  1. Did eMove qualify as a business under the Act?
  2. Did Ferguson’s work constitute part of eMove’s trade, business, or occupation?

The first question was easily dispatched in the affirmative. The second was more difficult. Ferguson argued that eMove’s sole source of revenue was the fifteen percent it collected from the total amount paid by the customer for a moving job completed by the local moving company and “[i]f people like Unterkoefler and Ferguson did not do the moving jobs, eMove would have no revenue at all.”

Ferguson also argued that eMove knew moving jobs required at least a two-person crew, that even if one member of the crew, e.g., Unterkoefler, was an independent contractor, eMove knew the other was certainly an employee. Ferguson also contended that eMove knew that many, if not most, of its subcontractors like Unterkoefler were too small to be required to purchase workers’ compensation insurance. eMove should not be allowed to claim ignorance of the risks faced by the downstream employees engaged in a very physical, dangerous job.

eMove countered that it was not in the business of moving; rather, it merely provided a service or marketplace in which U-Haul truck renters and movers could meet to assist with moving help. The appellate court noted that the appellate panel had found that the actual moving was not a part of eMove’s trade, business, or occupation and that instead eMove’s business was to match U-Haul renters with moving help. The appellate court also observed that Ferguson presented no evidence that eMove contracted with anyone to move or engaged in any moving itself.

Court of Appeals: eMove was not a moving company.

Based on the foregoing, the appellate court agreed with the panel; eMove was not Ferguson’s statutory employer. While eMove did rely on the movers to produce its 15 percent share of the total amount paid by the customer for the local mover’s services, the appellate court said eMove was not a moving company; its business or trade was to create a marketplace where U-Haul renters could meet movers.

New Business Model: Disintermediation

I generally agree with the court’s decision. As I (and a number of others) have argued, contrary to the two decisions in federal district court in California, Uber and Lyft really aren’t in the taxi business. They own no vehicles. Rather, they are “disintermediators,” involved in a process of wringing inefficiencies out of the market, of eliminating the need for “middlemen.” By means of the “app,” the owner and driver are directly brought together. Similarly, eMove similarly isn’t in the moving business. It brings persons who’ve rented a truck together with laborers who can provide assistance in loading or unloading.

Practitioners should not confuse the Uber/Lyft/eMove business model with the model utilized in a number of taxi cases in which the cab company owns the cab and, in an attempt to avoid the employment relationship, leases or otherwise consigns the cab to the driver under a carefully crafted, but artificial contract identifying the cab driver as an independent contractor [see Larson’s Workers’ Compensation Law, §§ 61.05, 62.03, 63.01]. Contrast that scenario with the situation where the cab company deals only with drivers who own their vehicles, control their hours and routes and who are free to accept riders on their own. Many courts have held that these taxi companies exert an insufficient level of control over the cab driver’s operations to establish an employer-employee relationship [see, e.g., Ademovic v. Taxi, USA, 767 S.E.2d 571(N.C. Ct. App. 2014), where the driver paid the taxi company a weekly flat franchise fee of $195.00].

The eMove situation is also quite different from that discussed in Alexander v. FedEx Ground Package Sys., Inc., 765 F.3d 981 (9th Cir. 2014), where the Ninth Circuit held that FedEx owner-operators were actually employees and not independent contractors, based upon the fact that the drivers were required to wear FedEx uniforms, drive FedEx-approved vehicles, and groom themselves according to FedEx’s appearance standards. The court there stressed that FedEx told its drivers what packages to deliver, on what days, and at what times. Although drivers could operate multiple delivery routes and hire third parties to help perform their work, they could do so only with FedEx’s consent. The court determined that the drivers, in all reality, had little autonomy; FedEx told them what color of socks they were to wear.

Ferguson’s Problem is the Three-Employee Exclusion Provision of the SC Act

In Ferguson, it is regrettable that the injured worker received no workers’ compensation benefits. That result was brought about, however, by the structure of the South Carolina Act, which exempts employers with fewer than three employees from compulsory coverage. There are strong policy arguments for excluding such employers from the Act. To the extent that it produces inequities, that is a matter for the South Carolina legislature.

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