Uber Taxi Drivers: Contractors or Employees?

2015-09-01 14:45
Tax news

What is Uber?

Uber taxi business started in 2009, while in May 2015 its services were already available in 300 cities of 58 different countries. Even Uber taxi are the perfect example of new business idea (structure) success there already some legal disputes are helding in few countries, most of all discussing on Uber drivers status. It was announced that Uber will soon start to work in Lithuania (in Lithuania are already working few IT specialists for Uber).

Uber provides taxi services which passengers can order by using the app in their phones. The drivers of Uber taxi working according to Licencing Agreements which determine the relations between drivers and company, and in this Agreements drivers are called 'independent contractors'.[1]This occasion also influences that persons often do not have financial security such as, medical care insurance or minimum salary even labour relations between him and the company actually exist.[2] Also, in accordance with the status of natural person who performs such activities differ the rules for tax counting and paying.

According to the occasions mentioned before we will discuss Uber taxi case in the context of labour and tax law.

The main feature of labour relations: control

There is not so easy to answer the question whether Uber drivers are employees or independent contractors. According to California law, the main feature which is important for court case when is researching the status of natural person performacing some bussiness activities are 'the right to control'. As it will be mentioned later in this article, this feature is important in Lithuanian law too when it is trying to find the differences between individual activities and labour relations. While the main feature when company agrees with independent contractor is that only form of control which company uses for the contractor is to provide the information about certain result of his work but not about any measures or methods which he shall use while reaching this result.

There is some questions about control which would help to find the answer about Uber drivers status. First of all, it is important to find out whether Uber supervises and instructs drivers about when, where and how they shall perform their work. Another serious feature which shows that control between company and driver exists is the company's right to fire the worker without a cause. Do drivers are free to terminate their work at any time? Also, does Uber provide all equipment and measures which are needful for taxi services?

Uber and its drivers relations untill these days were usually analyzed according to the results of drivers' work. But it should be noted that Uber, instead of being intermediary between passengers and drivers, seeks to control their work, setting extremelly detailed list of requirements, such as, how exactly drivers shall clean their cars, what drivers could say to passengers and even on what time they shall have to pick the passenger and release him. The Uber right to fire the driver at any moment is the strongest argument justifying the fact that company controls the activities of working party. Even in Licencing Agreement between Uber and drivers are provisions about Uber' right to rate the quality of drivers work and to terminate the Agreement with person who does not meet Uber requirements. These reasons shows labour relations between Uber and drivers.[3]

Secondary factors related to working person status

As we mentioned above, the control is the main feature which shows that certain person is the employee of the company. However, secondary factors of relations between company and natural person who performs some business activities are useful too to find out his legal status.[4]
To answer in a question whether Uber driver is a contractor or an employee could help this table:




Another business

Working with few parties of contracts at once. He can be found in business catalogues, using business phone or another forms to spread information about his activities 

Does not provide his services to public all alone

Term of assignment

Performs one particular task and there is no expectations for continuation

Performs same tasks for the same business subject constantly


Fee for finished task (certain result)

Fee for time which was taken to perform a task (usually not for result)

Influence to business success and continuity

His activities do not form the main part of company business and its success are not related to this person's activities 

His activities form the main part of company's business and business' success and continuation is related to his performance

The integration of employee to the main business of company was evaluated in the courts of California since 1989 case in the Supreme Court of California[5]. In the Borello case the court first time concluded that isolated evaluation of worker's control is not inadequate to provide the security for employees which should be granted by Labour Law. In this case court decided that freelance farmers were employees of the owner of the fields, because owner provided the strong control on these workers and gave very strict requirements on their activity in fields.

All in all, according to the criteria mentioned in the table above and court explanations, we could conclude that Uber drivers are its employees. Opposite than Uber are saying, it is not mediator, because it directly controls how drivers perform their work. On the other hand, even drivers have some freedom on the terms on the place where they work or for whose they are work, Uber still provides very detailed requirements on the operation of driving as a whole service, because just Uber itself can decide the prices of taxi services and any decidion which are made by driver should be confirmed by Uber. It can be said that drivers' activities are the main part of Uber business as freelance farmers' activities were main part of owners of the fields business, and they influence the success and continuation of the company.[6]

Individual activity v. labour relations according to Lithuanian law

As was mentioned before, tax obligations differ in accordance with the status of natural person who performs business activities (employee or independent contractor). It means that the procedures of tax counting and paying are different too. It should be noted that when person legal status is emplyoee, labour taxes counts and pays employer. If person performs individual business as independent contractor (in Lithuanian 'individuali veikla') all income and social security taxes counts and pays natural person by himself.

If the person provides his services as from the list of 'independent professions' (for example, lawyer, notary, bailiff, auditor, accountant, tax consultant, physician, journalist, architect or similar) his income of such activities are levied by 15 percent of income tax. However, there is some cases when the income independent contractor would be levied by 5 percent of income (for example, production (including agricultural), trade and other services). While the labour income of the person who has official status as employee of a company always are levied by 15 percent of income tax.

State Tax Inspectorate (STI) provides some criteria[7] when the relations between company and the natural person would be considered as labour relations:
1. the natural person provides his services only for the one company which gives him workplace and measures for work;
2. there are some obligations for natural person, for example, he carries out the instructions, attends the course, meetings which are helded by the company;
3. there are some requirements for person to form positive imagine of the company in public, also, to comply the company's provisions of ethics;
4. person are compiling contracts of services in behalf of the company;
5. person get the piece of salary (usually official minimum salary) according to employment agreement, other piece - as income of individual activity;
6. STI determines other signs of labour relations.

In accordance with the information mentioned above, we can conclude that control (as feature which qualifies the labour relations) in the STI explanations are spread into few specific criteria, for example, there are some obligations for natural person which are provided by company (on attending courses, meetings, forming posivite image of the company, compliling the requirements of ethics and similar). We believe that justifying the feature of control in Lithuanian law could also be additional signs, such as, person undertakes to comply the company's requirements on workplace, certain measures of works, the procedures of reaching the work's result and similar. It also should be noted that in the court's practise already exist cases where court was analyzing the 'control feature' between taxi company and drivers.[8]


With respect to drivers' obligations for Uber in case of proccess of carriage of passengers, also, drivers' duties related to the image of the Uber taxi in public eyes and that drivers are compiling contracts of transport services with passengers on behalf of Uber taxi, showing that between Uber taxi and its drivers exist labor relations. This means that Uber as any subject of business which hire workers by employment agreement should pay taxes related with labour relations also compensations, severance pay and any use any other measures of workers' social security. It is expected that, according to foreign courts' practise and Lithuanian Tax Inspectorate clarifications and Lithuanian labour law, Uber drivers would be considered as company's employees too.

You can find the full article in Lithuanian language here.
[1]Uber calls its drivers as 'clients', saying that drivers buy the Uber app as any client (user) of technologies company, in that case, Uber does not have obligation to pay for medical care, disability, over-time, disability, annual holidays or maternity leave as any other employer pays. It keeps their profit margins up and enables the company to grow at breakneck speed. Source: Somerville, H. Florida Says Uber Driver is Employee not a Contractor. 2015-05-21, SiliconBeat.

[2]USA provide such numbers: 2 of 10 employees are misclassified as independent contractors. Employer reduces the labour costs by 20 percent (avoids paying compensations, social security taxes and other labour taxes). USA lose each year millions of dollars for employee misclassification, for example, 1. 35 mln. dol. unemployment taxes; 2. 103 mln. dol. compensations for workers; 3. 223 mln. dol. income tax. Source: Afkari, A.J. Are Uber Drivers Employees? 2014-07-28, Techlawgic.
[3]Afkari, A. J. Are Uber Drivers Employees? 2014-07-28,Techlawgic.


[5]Supreme Court of California 23/03/1989 Judgement in the case S.G. Borello & Sons, Inc. vs. Department of Industrial Relations


[7]Individual activities or labour relations. State Tax Inspectorate.Individuali veikla ar darbo santykiai? Valstybinė mokesčių inspekcija.

[8]Lietuvos vyriausiojo administracinio teismo 2015 m. gegužės 20 d. nutartis byloje Nr. P-60-602/2015.