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Texas Enters the Fray: Is Your Uber Driver an Independent Contractor?

When Texas Governor Greg Abbott signed a new law regulating “Transportation Network Companies” this past Memorial Day, he was probably more interested in limiting the right of more liberal municipalities—such as Austin or Houston—to regulate ride-hailing companies than on the ongoing debate over the employment status of Uber and Lyft drivers.

But the law, which regulates those companies that connect drivers and passengers exclusively through a digital network, does make it easier for Uber and Lyft to claim that its drivers are independent contractors if (i) the driver and company agree in writing that the driver is an independent contractor and (ii) the company does not prescribe the driver’s hours, limit the territory within which the driver may provide a ride, or stop the driver from working for another ride-hailing company or in another occupation.

Texas joins more than 40 states that have enacted statewide ride-hailing regulations. Some of these states, such as Ohio and Indiana, have gone even further than Texas when it comes to drivers’ employment status—presuming drivers to be classified as independent contractors absent a written contract stating otherwise, regardless of whether the ride-hailing company meets any legal conditions.

But these state lawmakers will not have the last word, as plaintiff drivers around the country are still challenging their independent contractor classification under federal law.

For example, less than a month ago, 19 Uber drivers filed a collective action lawsuit in the Southern District of Texas, alleging misclassification, minimum wage, and overtime violations under the Fair Labor Standards Act. The drivers have argued that Uber controls the working relationship with its drivers through adhesion contracts, its unilateral calculation and collection of fares, and its power to suspend or deactivate driver accounts.

If these cases are not settled or forced into arbitration, they will likely be resolved under traditional independent contractor tests, such as whether the driver is economically dependent on the company or whether the company has the right to control the means and methods of the driver’s work.

The Department of Labor, which has previously commented on these tests, recently rescinded its independent contractor guidance but has not yet given specific direction on this issue. One suspects, however, that it may be more friendly to employers.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.