Today, “Rideshare” companies like Uber and Lyft have become a primary mode of transportation for busy Americans.[1] With people relying on the convenience of Rideshare transportation more than ever before, the industry is estimated to be valued at almost $186 billion by 2026.[2] However, the convenience of this type of modern transportation comes with a host of problems.
In 2020 alone, Uber reported 141 incidents of rape, 998 incidents of sexual assault, and removed over 80,000 drivers due to criminal background checks despite the complications COVID-19 imposed on the Rideshare industry.[3] Unfortunately, Rideshare companies often escape liability for the bad acts of their drivers because most states characterize Rideshare drivers as independent contractors. This is because under the doctrine of respondeat superior, companies are only liable for the bad acts of employees committed within the course and scope of their employment, and not the bad acts of independent contractors.[4] There are a few exceptions to this rule such as negligent hiring or negligent undertaking, but they are extremely difficult to prove.[5] These exceptions have been tested in several Rideshare cases around the country, but there are new “partnership” theories upon which plaintiffs could potentially recover that have not yet been tested such as a joint enterprise or joint venture theory.
Most States Classify Rideshare Drivers as Independent Contractors
The majority of states classify Rideshare drivers as independent contractors. Texas is among several other states that have codified this sentiment. The Transportation Network Companies Statute (TNC) states “[a] driver who is authorized to log in to a transportation network company’s digital network is considered an independent contractor for all purposes . . . .”[6]
A driver will maintain their independent contractor status as long as the company does not:
- “prescribe the specific hours during which the driver is required to be logged in to the company’s digital network”
- “impose restrictions on the driver’s ability to use other transportation network companies’ digital networks”
- “limit the territory within which the driver may provide digitally prearranged rides”
- “restrict the driver from engaging in another occupation or business.” Thus, if the Rideshare company is in full compliance with the TNC statute, their drivers are considered independent contractors.
However, a Court of Appeals in Dallas, Texas recently held in Freyer v. Lyft that the classification of Rideshare drivers as independent contractors does not mean Rideshare companies are immune from ordinary negligence claims like negligent hiring or negligent undertaking of an independent contractor.[7] These claims, however, are extremely difficult for plaintiffs to succeed on.
Like Texas, California Rideshare cases and legislation are quickly evolving. In 2019, the California legislature passed AB-5, a law which imposed the three-part “ABC test” to determine if someone is an independent contractor.[8] Under this test, Rideshare drivers were classified as employees. In direct response to AB-5, California voters approved Proposition 22 (Prop. 22), the Protect App-Based Drivers and Services Act 5 in 2020. Prop. 22 was a ballot initiative led by app-based companies to classify Rideshare drivers as independent contractors.[9] For a brief period, Proposition 22 was declared unconstitutional but its constitutionality was subsequently upheld in Castellanos v. State of California in 2023.[10] The California Court of Appeals held “Proposition 22 does not intrude on the Legislature’s workers’ compensation authority or violate the single-subject rule” meaning Rideshare drivers would continue to be classified as independent contractors and Rideshare companies could continue to escape liability.[11] This decision will likely be appealed to the California Supreme Court.
Additionally, other states that statutorily classify Rideshare drivers as independent contractors include:
- Alaska
- Arizona
- Arkansas
- Colorado
- Connecticut
- Delaware
- Florida
- Hawaii
- Indiana
- Michigan
- Massachusetts
- Mississippi
- Missouri
- New Hampshire
- North Carolina
- Ohio
- Rhode Island
- Utah
- West Virginia
- [12]
New York Classifies Rideshare Drivers as Employees
On the other hand, the State of New York classifies Rideshare drivers as employees rather than independent contractors. In 2016, the New York Department of Labor affirmatively ruled that Uber drivers were employees after a close examination of the relationship between Uber and its drivers.[13] This meant Uber could be held liable for the negligent acts of their drivers. Fast-forward to 2020, the New York Supreme Court in upstate New York upheld the labor board’s decision in Matter of Lowry by holding Uber liable for unemployment insurance contributions because Uber “exercised sufficient control over the drivers to establish an employment relationship.”[14]
The general test to determine whether an employment relationship exists is “whether the purported employer exercised control over the results produced or the means used to achieve those results, with control over the latter being the more important factor.”[15] While no one fact is dispositive, the court considered how Uber controls the drivers’ access to customers, sets the drivers’ compensation, provides a navigation system, tracks the drivers on their trips, controls the vehicles drivers can use, and reserves the right to adjust ride fares in finding that an employment relationship existed.[16] While this ruling is only binding in upstate New York, it could signal how other courts will rule on Rideshare cases in the future. For now, New York remains the odd man out by classifying Uber drivers as employees.
Are Rideshares Engaged in a Joint Enterprise or Joint Venture with Their Drivers?
Since most states classify Rideshare drivers as independent contractors, Rideshare companies are insulated from liability unless one of the few exceptions to this rule can be proved. This leaves plaintiffs with few avenues for relief. However, two new and untested theories known as joint enterprise and joint venture are likely to soon emerge and provide plaintiffs with viable options for recovery.
In Texas, parties form a joint enterprise when they have:
- an express or implied agreement among members of the group
- a common purpose
- a community of pecuniary interest in that purpose
- an equal right to a voice in the direction of the enterprise giving each an equal right of control.[17]
In a joint enterprise, each party is an agent of the other, making each party responsible for the wrongful acts of the other.[18]
On the other hand, joint ventures require:
- an express or implied agreement
- a common purpose that the group intends to carry out
- hared profits and losses
- a mutual right of control.[19]
Uber’s “Terms of Use” specifically state it is not engaged in a joint venture or partnership with its drivers, but it does not make any mention of a joint enterprise.[20]
Joint Enterprise
The joint enterprise theory has not been tested in any Rideshare cases. The only time any kind of “partnership” theory of recovery has been asserted in the Rideshare context is in the Southern District of New York.[21] Unfortunately, the case was dismissed when the judge held the plaintiffs had not alleged any of the partnership factors required to be proved under New York law.[22] It is likely that the joint enterprise theory has not been tested because the third element—a community of pecuniary interest in the common purpose—is a highly contested and difficult element to prove. The other elements are easily satisfied. For example, Uber has an express agreement with their drivers that governs the common purpose of both parties which is to facilitate safe transportation for their customers. Both parties also have an equal right of control over the acceptance or denial of rides, and each party benefits from providing as many rides as possible to increase Uber’s revenue.
The Texas Supreme Court has held “to satisfy the third element . . . an interest must first be monetary in nature . . . [and] common among the members of the group . . . without special or distinguishing characteristics.’”[23] Further, “[t]he investment of time and money to fulfill a common purpose, however, does not render that purpose ‘pecuniary’ in nature . . . [a] community of pecuniary interest in the common purpose exists when sharing the costs of accomplishing a common purpose does not render the parties’ respective interests in that purpose ‘community’ in nature.”[24] While it is unclear as to what exactly satisfies the third element, a few transportation cases where courts have found a joint enterprise to exist should encourage counsel to start pursuing this avenue of recovery in Rideshare cases.
One example is the case of Texas Department of Transportation v. Able where the Texas Supreme Court held a joint enterprise existed between a state agency and a local transit authority.[25] The court focused on an agreement between the parties which stated the use of facilities would “involve the investment of substantial sums for mass transit purposes.”[26] After analyzing this agreement and other documents indicating the project was a joint effort, the court upheld the jury finding that a community of pecuniary interest existed because the “project was not a matter of ‘friendly or family cooperation and accommodation’ but was instead a transaction by two parties that had a community of pecuniary interest in that purpose.”[27] It was clear to the court that the parties contemplated an economic gain that would result by engaging in the activities they undertook together.
The relationship between modern Rideshare companies and their drivers align with the court’s reasoning in Able to satisfy the third element. Uber and their drivers have a written agreement to share profits derived from the efforts and resources of both parties to provide rides to customers. This satisfies the third element because the interest contemplated by the agreement is:
- monetary in nature
- requires a substantial investment of time and money from both parties.
While the investment of time and money to fulfill a common purpose does not itself render the interest pecuniary in nature, the interest is without distinction and shared commonly between Uber and the driver which is exactly what the Texas Supreme Court requires. If Uber wins, the driver wins, and vice versa. The transactions between Uber and its drivers are also not “a matter of friendly or family cooperation and accommodation.” The agreement specifically contemplates a substantial economic gain that will be realized after the undertaking of activities in the manner provided by the agreement just like the Able agreement.
To the extent Uber argues they are not engaged in a joint effort with its drivers and that they are merely a platform to facilitate rides with customers, this argument is without merit because without the help of both Uber and their drivers, Uber would cease to operate. This is the very essence of a joint enterprise. Whether Uber chooses to acknowledge it or not, it is very likely all the elements required to form a joint enterprise are met through its current arrangement with its drivers.
Joint Venture
A joint venture is similar to a joint enterprise but is unique in its own ways. The biggest distinction is that a joint venture requires an agreement between the parties to share in profits and losses. Regarding the other elements, there is ample evidence of a community interest, an agreement to share profits, and a mutual right of control in the written agreements between Rideshare companies and their drivers. Uber, again, is a great example.[28] But it is still unclear whether Rideshare companies and their drivers share in losses. However, the Texas Supreme Court in Porter v. Puryear held shared profits and losses do not have to be directly monetary in nature.”[29]
Porter involved an agreement between two physicians which provided one doctor would perform surgery and the other would provide the facilities. The agreement explicitly evidenced a promise to share profits but was silent as to losses. The court held:
The fact that [one physician] was not responsible for a share of the hospital expenses and attendants’ salaries did not mean that he shared no part of the losses: If the fee was paid, both would share in the compensation arising out of the venture. If the fee was not paid, both would share in the losses.[30]
This meant one doctor would lose the value of his services, time and labor, and the other the value of the use of his facilities.[31] The court upheld a finding of a joint enterprise.[32]
The arrangement between companies like Uber and their drivers is arguably very similar to the one in Porter. Despite Uber’s terms stating they are not engaged in a joint venture with their drivers, Uber has the authority to deny drivers the ability to offer rides through their app.[33] This leads to a decrease in profits which is monetary in nature and shared by both Uber and their drivers. Additionally, Uber drivers would be denied the value of the use of their vehicle and Uber the value of their services in facilitating rides with customers which is not directly monetary but is like the losses suffered by the parties in Porter. Thus, while a joint venture might be more difficult to prove than a joint enterprise, there is case law which supports the existence of joint ventures in the Rideshare context.
The law surrounding Rideshare controversies is far from settled, and because reliance on Rideshare companies like Uber and Lyft for transportation continues to increase, case law and legislation surrounding vicarious and independent liability for Rideshare companies will continue to rapidly evolve. To ensure individuals have a fair chance at recovery after suffering an assault or attack by a Rideshare driver, attorneys are encouraged and implored to pursue joint venture and joint enterprise theories of recovery for their clients based on existing case law and legislation. Practitioners in Texas should also keep in mind that Rideshare companies must be in full compliance with the TNC statute for their drivers to qualify as independent contractors and that the statute does not abrogate traditional common law negligence claims such as negligent hiring or negligent undertaking. Accordingly, there are several viable causes of action under the present state of the law to not only hold Rideshare companies liable for the bad acts of their drivers but to compensate victims who have experienced an assault at the hands of Rideshare drivers.
Written by:
Rylee Stanley
Law Clerk
WATTS GUERRA LLP
Four Dominion Drive, Bldg. Three, Suite 100
San Antonio, Texas 78257
Phone: (210) 447-0500
Frank Guerra
Board Certified – Personal Injury Law
Texas Board of Legal Specialization
WATTS GUERRA LLP
Four Dominion Drive, Bldg. Three, Suite 100
San Antonio, Texas 78257
Phone: (210) 447-0500
Be sure to follow us on Instagram and Facebook to see more Watts Guerra news!
