Archive for the 'Business Law' Category

Uber Driver Considered Employee and Not Contractor

In a recent decision by the California Labor Commissioner, a driver for Uber is considered to be an employee, and not a contractor. Uber is a transportation network company with headquarters in San Francisco, CA. It operates a mobile application that permits consumers to make trip requests that are routed to sharing economy drivers. Uber drivers in Florida have already been classified as employees earlier this year and California may be following Florida.

The ruling, which was issued on June 3, 2015, was made in response to a claim filed by an Uber driver named Barbara Ann Berwick, who is based in San Francisco. Berwick was awarded by the commissioner approximately $4,000, which covers the cost of her expenses and unpaid wages. However, Uber has filed an appeal, claiming that the company merely allows drivers and passengers to engage in business transactions through Uber.Uber

This ruling is in stark contrast to the decision made in 2012 by the same commissioner, who ruled that the driver was an independent contractor. In that case, the commissioner considered such evidence as the driver’s ability to set his own hours. Uber also contends that in five other states, officials determined that Uber drivers were independent contractors. However, in this case, the commissioner seems to have considered a wider range of factors.

The rationale for the commissioner’s decision is that Uber is “involved in every aspect of the operation.” According to the commissioner, Uber has control over the tools used by the driver; Uber keeps track of the driver’s ratings; and Uber  ends the driver’s ability to access the system in the event that the driver’s ratings drop below 4.6 stars.

The recent decision may well have far-reaching implications for Uber. If all Uber drivers are eventually classified as employees, then the company could incur higher costs, including Social Security, unemployment insurance, and workers’ compensation. As a result, the company, which is valued at over $40 billion, could take a loss in its market value. If the ruling is upheld on appeal, it could set a precedent that is followed by commissioners and courts in other states.

Wells Fargo Bank Commits Fraud Against Its Customers

Wells Fargo Bank is facing a lawsuit from the city of Los Angeles, which alleges that the bank participated in unfair business practices by persuading its employees to engage “in unfair, unlawful, and fraudulent conduct.” According to the lawsuit, Wells Fargo workers were under a great deal of pressure to meet sales goals, and thus, were in the habit of opening accounts for their current customers without first obtaining their permission.

The city of Los Angeles refers to Wells Fargo as a “fee-generating machine” because of its efforts to compel its employees to meet unrealistic sales goals. According to the city, “Wells Fargo places unrelenting pressure on its bankers to open several accounts for each customer. “ “Wells Fargo’s bankers are thus naturally and predictably forced to use alternative means to meet quotas.”

As a result of the workers’ actions, customers were subjected to more fees and a diminished ability to obtain credit anyplace else. For example, their credit reports were affected, thereby having an adverse impact on their capacity to obtain a car loan or mortgage. Customers also felt compelled to get identity theft protection because Wells Fargo accounts were being opened in their names without the customers’ consent. wells-fargo-robbery

The city is therefore attempting to secure a court order from the Los Angeles Superior Court that would mandate that the bank act in compliance with the law. It is also seeking to have Wells Fargo penalized with a fine of $2,500 per violation in accordance with California’s unfair competition statute and restitution.

In addition, the city alleges in its lawsuit that Wells Fargo workers were dishonest with customers when they told them that they had to open more accounts in order to get a checking account. Moreover, workers incorrectly informed customers that there were no fees associated with the accounts, and pressured customers into buying extra products, such as life insurance.

Furthermore, the city claims that Wells Fargo was in violation of state and federal law when it misappropriated customers’ private information, and neglected to inform customers that their private information had been misused. In response, representatives from Wells Fargo said that they have disciplined a few employees who have misappropriated customers’ personal information in order to open accounts without their permission.

Ken Wallman, a business owner, was one customer whose private information was misused by Wells Fargo workers. Wallman told Los Angeles Times in an interview that he opened a checking account with Wells Fargo, but eventually he had a dozen additional accounts because the bank opened additional accounts without first obtaining his approval. When Wallman tried to close the accounts, Wells Fargo refused and, instead, charged him extra fees.

Unfair Competition Law

Under California’s Unfair Competition Law (UCL), there are five definitions of unfair competition outlined in §17200. They are as follows:

  1. An illegal business act or practice;
  2. A business act or practice that is unfair;
  3. A business act or practice that is fraudulent;
  4. Advertising that is unfair, deceptive, untrue, or misleading; or
  5. Any act forbidden by §§17500-17577.5.

Under §17203, the court can order injunctions to prevent the unfair competition as well as order other equitable defenses. Victims of unfair competition can obtain relief through the court, which can order that money or property be returned to them. In the event that an injunction is issued in accordance with §17200, those who intentionally engage in unfair competition could be penalized up to $6,000 per day. And when a lawsuit is filed by a government agency, such as the city of Los Angeles, civil penalties of up to $2,500 per violation are permitted.

Incoming search terms for the article:

Walmart Joins the Trend to Increase Minimum Wage

Minimum wage has always been a controversial topic. Proponents argue that minimum wage protects the working poor. Others feel that minimum wage slows job growth and discourages employers from hiring new employees. For most of America’s history, there was no minimum wage. While a first attempt at establishing a national minimum wage came in 1933, it wasn’t until United States v. Darby Lumber Co in 1944 that the Supreme Court held that Congress had the power under the Commerce Clause to regulate employment conditions.

minimum wage increase walmartIn November 2014, many states put the question of whether minimum wage should be raised to a vote. Voters in a number of those states have voiced overwhelming support in favor of higher minimum wage. Alaska, Arkansas, Nebraska, Delaware, Virginia, Rhode Island, Michigan, Minnesota, Connecticut, Maryland, and Massachusetts have passed higher wages that have been implemented as of January 2015. Cities such as Seattle, Portland, Louisville, and San Francisco have implemented higher minimum wages to support and grow their local economies.

Most recently, Walmart made headlines when it announced that it planned to give its lowest paid employees a wage hike. By April, all employees would earn a minimum of $9 per hour. By February of 2016, the wage will be increased to $10 an hour. The wage hike will affect 500,000 workers.

Walmart can’t take credit for paving the road, however, as GAP and Ikea implemented higher minimum wages for employees last year. While the motive behind the move is mixed, there’s no denying that many other companies are likely to follow in the footsteps of the corporate giant. In fact, today Marshall’s and TJ Maxx announced that they plan to increase the wages of their employees to $9 an hour by June 2015.

Proponents of raising the minimum wage argue that it could have far reaching positive effects on the economy—both on local and national levels. Raising the minimum wage means that those workers are earning more and have more money to spend, thus stimulating the economy. The logic then follows that as people spend more, businesses grow and create an environment that requires more employees.

Additionally, supporters argue that if workers are surviving on higher minimum wage, they are not as likely to rely on social programs for support as they can now support themselves. As a result, there is less stress and expense placed on social programs. Additional positives noted are less turnover as employees with more earning potential are happier in their jobs and less likely to leave.

Needless to say, despite the positives, minimum wage increases has many worried. In fact, in San Francisco, Borderlands Books, a small science fiction, horror and fantasy, was set to close its doors on March 31st due to the wage hike. The wage hike was calculated to result in a 39% increase in wages for his employees in four years—a cost too high for the bookstore to maintain. (Note: Due to savvy business ideas, Borderland Books was able to keep its doors open—for 2015—through the implementation of membership programs and sale of bookstore memorabilia.)

Additional negatives that many believe are created by a minimum wage hike are layoffs, price increases, fewer hirings and increased competition. Smaller businesses simply cannot compensate the same number of employees at a higher wage and thus layoff many. In order to generate enough income to support the increased costs of wages, many business owners will raise the cost of their product. Small businesses also worry that they will not be able to increase their workforce because they won’t be able to afford to pay new employees.

No matter which side of the fence you stand, there is no doubt that minimum wage will be making headlines for the foreseeable future. The question is the impact it will have on the economy.

Federal Court Rules That Yelp’s “Hard Bargaining” Is Not Extortion

Yelp has been plagued by accusations of extortive business practices for years. Consumers and small businesses alike have taken to their websites and blogs to report how businesses that purchase advertising through the Yelp are rewarded with the removal of negative reviews from their business profiles, while businesses that refuse to pay Yelp for advertising are punished – their positive reviews are removed and mysterious negative reviews begin to appear.

yelp lawsuitAt this point, those who frequent the website should know to take Yelp reviews with a grain of salt. However, given Yelp’s status as the juggernaut of online business reviews, if these allegations are true, small businesses that decline to advertise with Yelp stand to take a sizeable hit.

Class Action Lawsuit against Yelp
Last July, a group of California small business owners proposed a class action lawsuit against Yelp, alleging that Yelp’s business practices amounted to extortion. The business owners claimed that Yelp hid positive business reviews and fabricated false negative reviews in order to threaten the businesses and coerce them to purchase advertising through Yelp; and claimed Yelp also used these tactics as a way to penalize business that refused.

When the U.S. District Court dismissed the case for failure to state a claim upon which relief can be granted, the plaintiffs appealed their case to the Ninth Circuit Court of Appeals.

The Ninth Circuit Ruled: Yelp’s Behavior Was Merely “Hard Bargaining”
The Ninth Circuit upheld the District Court’s dismissal of the case, saying that Yelp’s behavior was “at most, hard bargaining.” The court stated that in order to prove extortion, a plaintiff must show either a pre-existing right to be free from the threatened harm or that the defendant had no right to seek payment for the service offered.

The court ruled that businesses have no pre-existing right to have positive reviews appear on Yelp. It explained that because Yelp is not under any legal or contractual duty to publish business reviews, removing them doesn’t violate anything other than Yelp’s own purported practice. Regarding the negative reviews, the court stated that re-posting negative reviews or moving negative reviews to the top of a business’s profile are, similarly, not a wrongful acts because they do not violate any legal or contractual rights of the business to be free from these negative reviews.

The court declined to discuss the legal consequences Yelp would face for fabricating false negative reviews, because the court found that there was no evidence that this had actually occurred.

In terms of Yelp’s right to seek payment for the service offered, the court held that there was no evidence to suggest that Yelp’s advertising services are a worthless sham or a privilege to which the plaintiff business owners were already entitled. The court held that businesses are free to decline to purchase advertising, but Yelp is not act wrongfully in offering it.

What Does This Ruling Mean for the Future of Small Business Owners?
While the Ninth Circuit’s dismissal of this case might seem like tacit approval of Yelp’s business practices, it is important to note that the ruling is limited to the alleged claim of extortion. There are other avenues through which Yelp’s actions might be challenged:

  • Other legal theories. The Ninth Circuit took care to point out that their ruling did not state that no cause of action exists that might cover the alleged conduct. The ruling simply states that Yelp’s actions did not meet the definition of extortion.
  • Contractual claims. One of the small business owners claimed that she gave in and purchased advertising through Yelp after Yelp removed nine five-star reviews from her business profile. However, after an initial improvement in her business rating, Yelp agents began contacting her about increasing her advertising purchase. Declining caused her rating to fall again. The Ninth Circuit noted that if this allegation is true the business owner could have a claim for breach of contract.
  • Consumer protection laws. Finally, just because the court decline to shield small businesses from Yelp’s “hard bargaining” does not mean that consumers will be left unprotected. The Federal Trade Commission has already issued guidance requiring search engines to distinguish search results that are the result of paid advertising from organic results (i.e., search results must be ranked on relevance not on third-party payment). It is easy to see the FTC expanding this policy to online business review sites such as Yelp, which, despite the Ninth Circuit’s ruling, states on its website, “Your trust is our top concern, so businesses can’t pay to alter or remove their reviews.”

Incoming search terms for the article:

The Debate over Commercial Insurance Coverage and Ride-sharing Reaches a Boiling Point

Commercial liability insurance protects the owner of a company against claims of liability for bodily injury and property damage. As opposed to personal passenger vehicles which only require minimum state limits for liability insurance, vehicles used in the course of a business are usually required to carry insurance with higher coverage for bodily injuries and property damage in the event of an accident. Pretty simple and not much room for debate, right? Wrong.

Ride Sharing InsuranceMuch to the dismay of both insurance companies and taxicab companies, ride-sharing start-ups such as Uber, Sidecar, and Lyft have swept across the country in the last few years. All are venture capital funded, San Francisco-based companies that have grown into billion dollar industries, operating in almost every state in the U.S.

Transportation Service or Technology Company?

These companies have long argued that they are merely technology companies and should not be subjected to all the rules, regulations, and permits that state and local agencies mandate for other transportation companies like taxi services. More importantly, they argue that they should not have to maintain the type of commercial insurance that is required for vehicles used in the course of a business. Consequently, states, counties, departments of insurance and public utilities commissions are scrambling to deal with this debate across the country. California’s struggle is a perfect example of the conflicts presented in the majority of states.

When Uber, Sidecar, and Lyft first started operating in San Francisco, they required their drivers to carry personal minimum liability insurance, which in California is $15,000 for injuries, $30,000 for total liability and $5,000 in property damage.

Taxi companies’ primary concern is eventually going out of business because, they argue, licenses, permits and insurance premiums make it impossible to compete with ride-sharing prices. On the other hand, insurance companies maintain that they want ride-sharing companies to continuing to prosper, as long as they are adequately insured. They claim that do not want to get stuck with the bill if the drivers only have personal insurance policies, but they refuse to admit they are trying to upset these companies business models.

Consequences of the Insurance Gap

Adding more fuel to the fire, in January of 2014, a 6-year-old girl was run down by an Uber driver in San Francisco. Although, Uber had a $1 million umbrella insurance policy, they maintained the driver was not covered because he didn’t have a passenger in the car. Here lies the problem. In San Francisco, authorized taxis are required to provide $1 million of liability coverage per incident, 100% of the time.

Now there were real-world consequences to the perceived gap in insurance coverage, where the umbrella commercial policy was not yet in effect because the driver did not technically have any passengers.

The insurance industry’s stance is that any time drivers are logged into a ridesharing smartphone app and looking for a ride they are providing a commercial service. The argument is that, because drivers are going to go where potential riders are, based on the pings the apps send to them, they will inevitably be driving to crowded urban areas. This often occurs at night when there is a greater chance for accidents, triggering insurance pay-outs. Therefore, when they enter these areas based on their running apps, they are engaged in “changed behavior” and transition to commercial drivers. Essentially, insurers argue, the drivers are no longer entitled to personal liability coverage and must now have commercial coverage.

In California, the Public Utility Commission (PUC) stepped in and set regulations for ride-sharing companies, such as Uber, Lyft, and Sidecar. Not technically exclusive to these companies, the regulations targeted all “New Online Enabled Transportation Services” (TNC.) They defined this as an organization that provides pre-arranged transportation services for compensation using an online enabled app or platform to connect passengers with drivers using their personal vehicles. Included are requirements that the TNC get a permit from the PUC, a criminal background check be issued for each driver, there be a driver training program, a zero tolerance policy on drugs and alcohol and increased insurance coverage. As for insurance coverage PUC mandates that a TNC maintains commercial liability insurance policies of not less than $1,000,000 per incident coverage if the accident occurs while the driver is providing services.

The new PUC regulations did little to satisfy the insurance companies and they insisted the commercial coverage extended to whenever the driver had their app running. In response, several proposals backed by insurance company lobbyists, were presented to the California legislature calling to overwrite PUC’s regulations and include stricter rules for permits and licensing. However, their principal demand was for mandatory commercial liability insurance for drivers even when they have no passengers.

The Compromise

At this point the legislature has conceded that PUC, and PUC alone, has regulatory authority over ridesharing companies. Local taxi cab regulators have no authority, meaning special city permits and licensing requirements do not apply. The bill, which was passed by the California State Assembly and State Senate in late August of 2014, will require drivers to have $50,000 coverage per person for death and injuries; $100,000 damage coverage per accident; and $30,000 coverage for property damage. The ride-share companies also must have $200,000 in excess liability to cover costs of accidents that exceed policy limits. However, the question remains, which insurance policy provides the extra $200,000 in coverage for drivers who cause accidents on personal trips while running on apps on their smartphones. This has yet to be adequately addressed and resolved.

Are There Any Other Alternative Solutions?

Many states are claiming that the ride-share companies are coming into their communities in full force, blatantly ignoring any regulations or restrictions that are passed. However, ride-shares have agreed in several states to provide $1 million in commercial coverage for whenever a ridesharing driver has a passenger. They claim to have offered solutions to deal with the insurance gap but, at this point, they have not agreed to the level of commercial coverage during the times that insurers are demanding.

State governments and other regulators have varied on their methods when trying to deal with ride-sharing companies. The following are some examples of the different approaches:

  • In Washington, D.C. the state legislature is considering a bill that would set minimum commercial insurance. There is a proposal from the D.C. Taxi Cab Commission to regulate ride-sharing companies so that their commercial insurance coverage would be the primary coverage for personal vehicles.
  • Connecticut and Kansas send alerts to ride-sharing drivers that they may not be covered by their personal auto insurance policies while driving for the company.
  • In Washington State there was a proposed state bill mandating a study of ride-sharing companies that must provide a report to the legislature examining issues such as insurance coverage requirements and safety regulations. This bill was defeated. However, the Seattle City Council passed an ordinance that requires drivers to have commercial insurance coverage whenever that driver is available for a ride.
  • The Chicago City Council passed an ordinance requiring ride-sharing companies to provide $1 million of primary noncontributory coverage. Additionally, they must have $1 million in liability coverage for themselves, and $1 million for the drivers from acceptance to the conclusion of the ride.
  • Cease and desist letters have been issued to ridesharing companies by cities in Michigan, Missouri, Nebraska, New Mexico, Ohio, Pennsylvania and the Texas cities of Austin, Dallas, Houston and San Antonio.

Although the ride-sharing companies have agreed to comply with some state legislation, critics continue to argue that the legislature is not entitled to regulate the “sharing economy” and interfere with legitimate technological business models. With the rise of technology will come an increased number of unforeseen issues concerning insurance coverage, the state legislatures will continue to wrestle with new snags in the system and the law will change at a rate that the public has never before seen?