Nuances of Defending Cases Involving Transportation Network Companies

September 25, 2019

USLAW Magazine

As ride shares become more prevalent, it follows that Transportation Network Companies (TNCs) will become an increasingly popular target for litigation. While liability issues may be clear-cut in a simple auto negligence matter, liability for TNCs becomes murky when drivers engage in separate misconduct such as driving under the influence or engaging in sexual assault. In most states, common defenses in these matters include (1) a lack of an employment relationship between the TNC and driver, (2) assertions that the driver's conduct is outside the scope of employment, and (3) assertions that TNCs cannot be held liable for negligent hiring or supervision if they did not, and reasonably should not have known about prior misconduct.

Drivers Are Independent Contractors

In California, while a corporation may be held vicariously liable as a principal for the torts of its agents, the converse is true that if an individual is deemed to be an independent contractor and not an agent or employee, vicarious liability will not attach. Typically in cases involving TNCs, California courts have held that the tortfeasor's employment status is a question of fact.

The factors a court uses to determine independent contractorship include (1) the right to control the work; (2) the alleged employee’s opportunity for proﬁt or loss depending on his managerial skill; (3) the alleged employee’s investment in equipment or materials required for his task; (4) whether the service rendered requires a special skill; (5) the degree of permanence of the working relationship; and (6) whether the service rendered is an integral part of the alleged employer’s business. For TNCs, the important factors favoring an independent contractor designation include the fact that typically, drivers are paid per ride (as opposed to a salary), drivers provide their own vehicles and auto insurance, and drivers can choose their own hours and length of work. It is often highlighted as one of the perks to working for TNCs that drivers can be their own boss and make money on their own terms.

In a recent case involving a Grubhub driver who also worked for Lyft and Uber, the Ninth Circuit Court found that the factor of at will termination does not weigh in favor of an employment relationship because the right was mutual. In further support of a defense to the control argument, the Ninth Circuit held that a mutual termination provision with 30 days' notice and a one-year term was consistent with an independent contractor relationship because “the designated impermanency of the relationship supports a finding of independent contractor status.” That being said, California cases have cited factors such as the company controlling rates and routes, and imposing rules regarding the cleanliness of vehicles as well as prohibited contact with customers as indicative of an employee relationship.

Alternatively, in states such as Nevada, drivers for TNCs are classified as independent contractors working commercially when they carry paying passengers. As such, TNCs have a benefit from the outset that there is no employer/employee relationship presumed.

As various jurisdictions differ on this issue, TNCs should monitor case law across the country and weigh the options of adjusting policies to further support the position that the drivers are independent contractors in the states where the issue is a question of fact.

Driver's Conduct is Outside the Course and Scope of Employment Relationship

A second defense available to TNCs when a driver engages in misconduct, is the argument that the driver's tortious actions were outside the course and scope of the employment relationship. In determining whether an individual's actions were within the course and scope of his employment relationship, California courts have held that "respondeat superior liability does not attach simply because employment brought the employee and victim together at a certain time and place. The employee's activities must be inherent in, typical of or created by the work so that it is a foreseeable risk of the particular employment." Typically, whether the tort occurred within the scope of employment is a question of fact.

In cases of intoxicated drivers, factors to consider include whether the incident occurred during working hours and whether the alcohol consumption was done in a manner which benefited the employer. In the cases of sexual misconduct, factors to consider include whether the TNC app was in use at the time of the assault and whether the sexual assault is determined to be incidental to the operation of the business.

Transportation Network Companies Cannot Be Held Liable For Negligent Hiring Where a Driver Does Not Have a Known History of Misconduct

A third defense TNCs may rely on in cases of driver misconduct is the defense that the company should not be liable for negligent hiring where there is no known history of misconduct. For example, in California in the Doe v. Uber Techs., Inc. matter, the Court granted Uber's motion to dismiss as to one driver when Plaintiffs did not allege that anything existed in the driver's background that Uber knew or should have known and that should have prevented Uber's approval of the driver. However, the motion to dismiss was denied as to the second driver where a 7-year background check revealed no misconduct, but the driver had a domestic violence conviction 12 years earlier.

In some jurisdictions, TNCs face additional requirements for operation including insurance coverage and fingerprint based background checks. Thus in order to decrease liability for negligent hiring and supervision claims, TNCs must comply with extensive background check requirements.

More states are now requiring TNCs to conduct background checks on each driver applicant and also requiring that they perform an additional check every so often. However, some of these same states allow for the sealing of certain criminal records statutory time limits. Thus, even by employing these additional measures to verify driver backgrounds, an added layer of uncertainty still exists. As such, TNCs should conduct comprehensive background checks on potential drivers to ensure that any potential past misconduct is known prior to permitting the individual to become a driver.

Additional Considerations Regarding Punitive Damages

In certain circumstances, an employer may be liable for punitive damages based upon an employee's wrongful actions such as when the employer had advance knowledge that the employee was unfit, the employer expressly authorized or ratified the conduct or the employer is personally guilty of oppression, fraud or malice.

A common defense to suits that allege driver misconduct is that the Plaintiff's claims arise solely from the misconduct of the driver. Thus, employers should take prompt steps to stop the behavior to avoid the perception of inadequate investigation. By ride share companies promptly responding to allegations of driver misconduct , they can avoid exposure to liability.

Conclusion

As Uber, Lyft, and other TNCs continue to increase in popularity, so does the litigation surrounding their use. One would be amiss to simply consider this ever-developing type of litigation to be no different than any other traditional case. Defense counsel must be aware of the fact-sensitive liability defenses, and the companies should take proactive steps to limit liability based on the emerging case law.