You are on page 1of 39

The UBER Conundrum:

A study on the legality of Ubers Partner-Driver Agreement

Introduction

Travis Kalanick
CEO, Uber
Technologies Co.

Inventors Travis Kalanick and


Garrett Camp founded the
company in 2009.

Uber: A transportation Network


company that operates through
UBER application for
smartphone users.

Users , pins their pick up


location and their destination.

The driver makes use of a GPS


service application through their
smartphones.

Introduction

Following the year of its


release for service, the
company gained investments.

As of May 2015, The service


app is now available in 58
countries and 300 cities
worldwide.

The company is also


challenged by governments
and taxi operators worldwide
for their legality.

Passenger and driver safety is


also challenged by petitioners.

CHAPTER 1:
Background of the
Study

Enactment of the E-Commerce Act (2000)

The Government has established the grounds for the growing technology sector
as well as recognizing its potential for one day becoming part of the human
needs.

Government agencies have started using websites to provide services more


conveniently and more uniformly, Banks as well started to use technology in
providing services.

The advancement of technology also paved the way for the rise of the gig
economy which is also known as the sharing economy.

Through technological advancement, development of applications such as Uber


and Airbnb (peer-to-peer based service providers) which had a meteoric rise in
terms of popularity redefined the gig economy.

UBER Technologies Inc.

Uber is a Transportation Network Company (TNC) which connects paying


consumers with drivers who provide transportation with their own vehicle.

The

Department

of

Transportation

and

Communications

has

defined

Transportation Network Company as an organization that provides prearranged transportation services for compensation using an internetbased technology application or digital platform technology to
connect passengers with drivers using their personal vehicles.

UBER Technologies Inc.

This type of service was found to be effective as Uber was valued at $50
billion on the same year.

Despite its booming success, Uber has been facing challenges with its
drivers.

Some drivers claim that they are employees of Uber and not an independent
contractor.

On March 2015, a federal district judge in the state of California has ruled
in favor of an Uber driver wherein said judge considered the
arguments of the drivers that they could be classified as an
employee.

UBER Dilemma
The distinction between an employee and an independent contractor is
an important one.
For the reasons of:
1.It will be the basis for the drivers entitlement for his/her
employment benefits.
2.To determine which Income tax liability should be applied.
3.Basis on whether or not an UBER driver is a common carrier; it is
also the basis on the vicarious liability of UBER.

UBER Contract : Misclassification of Drivers

LABOR ISSUE: Ubers partner-driver contract states that the relationship


between the driver and the company is of an independent contracting
parties.

TAXATION ISSUE: An employee is required to pay compensation income


tax while an independent contractor is required to pay business income tax.

COMMON CARRIER/VICARIOUS LIABILITY: Whether or not extraordinary


diligence is required in the business operations through its drivers. It also
queries the liability of Uber in case a third party receives damages or injuries.

Section 13.1 of Ubers Services Agreement


13.1. Except as otherwise expressly provided herein with respect to
Uber, its Affiliates, related parties or thirdparty outsourcing entities
acting as the limited collection agent solely for the purpose of collecting
payment from Users on your behalf, the relationship between the parties
under this Agreement is solely that of independent contracting parties.
The parties expressly agree that:

(a) this Agreement is not an

employment agreement, nor does it create an employment relationship,


between Uber, its Affiliates or related parties and you; and (b) no joint
venture, partnership, or agency relationship exists between Uber, its
Affiliates or related parties and Customer or Uber, its Affiliates or related
parties and any Driver.

Uber | Labor Issue

Uber contends that its drivers are independent contractors despite the
existence of several indicators that an employer-employee relationship
exists.

It has been well-established in the Philippine jurisprudence that the


employment status of a person is defined and prescribed by the law, and not
by what the parties says it is. (Insular Life Assurance Co. Ltd. V. NLRC, G.R. No.
119930, 12 March 1998)

One of the things the researchers are to consider in this issue is to question
on the operations done by the uber management to its drivers.

Uber | Taxation Issue

An employee is required to pay compensation income tax while an


independent contractor is required to pay business income tax.

Under the revised withholding tax table, an employee is subject to


withholding of taxes ranging from five (5%) up to thirty-two percent (32%)
depending on their compensation income.

Under the expanded withholding tax table provided by the Bureau of Internal
Revenue, an independent contractor such as an uber driver, is subject to a
ten percent (10%) withholding tax for the income earned from his or her
work.

UBER | Taxation Issue

However, Uber does not withhold the taxes from the income of its driver
therefore they are only required to pay percentage tax (3%). It violates the
equal protection clause of the Constitution by imposing a lesser burden to the
uber drivers.

UBER | Common Carrier Issue

A common carrier is required to show extraordinary diligence in their


transport of persons or cargo, and are presumed at fault in case of death or
injury.

By classifying an Uber driver as an independent contractor, means that they


are not required to show extraordinary diligence in their transport.

Department Order 2015-11 of the Department of Transportation and Communications


has introduced four new public transport categories and among these four categories is
the Transportation Network Vehicle Service (TNVS) which covers those vehicles who
operate under a Transportation Network Company.

UBER | Common Carrier Issue

DOTC secretary Jun Abaya explained that the TNVS classification will allow appbased services offered by Transportation Network Companies to exist within the
regulatory framework of the Land Transportation Franchising and Regulatory
Board (LTFRB).

It is presumed that the newly found TNVS could be considered a common


carrier, with them being under the regulation of the LTFRB.

Uber contends that they do not provide transportation service and they are
only a mere intermediary between a passenger and a driver.

Article 2176, in relation with Article 2180 of the Civil Code provides those who are subject to
a vicarious liability, to wit:

Art. 2176. Whoever by act or omission causes damage to another, there


being fault or negligence, is obliged to pay for the damage done. Such
fault or negligence, if there is no pre-existing contractual relation between
the parties, is called a quasi-delict and is governed by the provisions of this
Chapter.
xxxx
Art. 2180. The obligation imposed by Article 2176 is demandable not only
for one's own acts or omissions, but also for those of persons for whom one
is responsible.
xxxx
Employers shall be liable for the damages caused by their employees and
household helpers acting within the scope of their assigned tasks, even

UBER | Vicarious Liability

By classifying Uber drivers as an independent contractor the


principal avoids the vicarious liability as what is only provided
in Art. 2180 are those who are in an employer-employee
relationship.

The vicarious liability under Art. 2180 is based on the principle of


pater familias in which the persons mentioned therein become
liable to the party aggrieved by their failure to exercise due
care and vigilance over the acts of subordinates in their
service or supervision to prevent the damage.

UBER | Vicarious Liability

Whenever an employee's negligence causes damage or injury to


another, there instantly arises a rebuttable presumption that
the employer failed to exercise diligence of a good father in
the selection or supervision of his employee. (Macalinao v.
Ong, G.R. No. 146635, 14 December 2005)

One who hires an independent contractor but control the latters


work, is responsible also for the latters negligence. (Cuison v.
Norton & Harrison Co., G.R. No. L-32774, 14 October 1930)

Main Research Question:

Whether or not UBERs partner-driver contract


is in accordance with the Philippine Laws.

Corollary Research Questions:


Whether or not Uber drivers are independent contractor and are not
subject to benefits provided by the Labor Code of the Philippines.
Whether or not Ubers partner-driver contract is in accordance with the
Civil Code of the Philippines (Art. 1173, Art. 1733, and Art. 2180).
Whether or not Ubers partner-driver contract is in accordance with the
National Internal Revenue Code.

Significance of the Study

Policy Recommendation

The researchers can foresee possible problems in the future concerning labor
clauses and dilemmas as to whether the employer or employee has obligations
over the other.

Since the Uber business and its characteristics is relatively new, it can be said
that there might be ambiguity in the contracts that binds both the private
company and the contractor drivers in cases wherein health, compensation, and
work relations are involved.

The Study could provide and serve as a focal point for the legislation to
settle the legal ambiguities in the contract and for the kind of relationship
that UBER has over its drivers.

Policy Recommendation:

This settlement, should it be taken into consideration would lead to the


revisions of the legislation and concerned government agencies on how they
will let Uber operate within the countrys premises.

Policy Implementation:

The research could provide the executive branch possible ways to determine
what actions they could perform (allow, regulate, or prohibit) whether the
contract is legal and free of flaws and ambiguity.

The executive can, using this paper as a pivot point can rule out or in favor
for the laws created by the legislation.

Policy Interpretation
Due to the fact that ride-sharing apps are relatively new in the
Philippine setting, the pool of information regarding the topic could
be considered as scarce. As an amicus curiae, this study will serve as
a source of information for the judiciary in the event that
there is a need for a competent court to decide on a matter
related to the topic of this study.

Business Implications

The results of this study would determine the course of actions of


peer-to-peer

service

providers,

specially

applications as regards to their business model.

the

ride-sharing

Scope of the Study

This study will be limited only to the determination of the legality of Ubers
partner-driver contract.

The primary sources that the researchers adopted in answering the main research
question are provisions from the Civil Code of the Philippines, Labor Code
of the Philippines, and National Internal Revenue Code as it is related to
the topic of the study.

The researchers will also utilize Philippine jurisprudence in order to determine


the validity of the contract.

Scope of the Study


Foreign Sources :
As the topic on peer-to-peer service provider is relatively new in the country, the
study will also be based on discussions on:

Foreign legislations

Judicial decisions

CHAPTER 2:
Review of Related
Literature

Public Transportation
The Public Transportation has been a symbol of a productive city and an ever
progress towards industrialization.
The distinction between a common carrier and a private carrier lies in the
character of the business. (Philippine American General Insurance Co. v. PKS
Shipping Co., G.R. No. 149038, 9 April 2003)
One who offers services or solicits business only from a narrow segment of the
general population is still a common carrier. (De Guzman v. CA and Cendana,
G.R. No. L-47822, 22 December 1988)

Classification of Workers
Classification of a worker can be identified with the use of the
fourfold test or the right-of-control test.
An employee is entitled to benefits and privileges provided by the
Labor Code.
Misclassification would result to loss of important workplace benefits,
protection, and other labor standards provided by law.
With the introduction of the sharing economy, the demarcation line
between and employee and an independent contractor has become
blurred.

Vicarious Liability
It is an exception to the rule that no person can be held liable for
the acts or omissions of another.
When an injury is caused by the negligence of an employee, the
presumption of law arises that there was negligence on the part of
the employer either in the selection or supervision of the employee.
(Bahia v. Litonjua, G.R. No. L-9734, 31 March 1915)
Vicarious liability cannot be negated by stipulating that the
employee is an independent contractor. (Cuison v. Norton &
Harrison Co., G.R. No. L-32774, 14 October 1930)

Uber in relation to Equal Protection Clause


Despite being in a similar line of carrier services to the public, taxi
cab operators and UBER operators are at a disagreement with each
other.
Being in a separate classification from taxi cabs, taxi operators are
resonating to be in a disadvantage against primary competitor, Uber.
Taxi operators pays franchising fees and licensing to LTFRB, and pays
a withholding tax up to thirty-two percent (5% to 32%) of withholding
tax depending on their income after their boundaries.

Uber in relation to Equal Protection Clause


Uber drivers salaries on the other hand, are not withheld but pay
only three percent (3%) of the government required percentage
taxes.
Though clear in its purpose of an equal protection for people before
the law added that the equal protection clause does not prohibit
classification thereof and that the constitution does not require
absolute equality among the residents. - Fr. Bernas (2011). The 1987
Philippine Constitution.

Uber and its Regulation


Ubers regulation varies from one country to another
Through analysis, the researchers have inferred the justifications
for such regulation of each country, namely:

There are no laws concerned

There is non-compliance with an existing law

There is a violation with an existing law

Conceptual Literature
After conceptualizing the resources presented, the researchers have
consolidated them into two schools of thought:
In the first school of thought, the partner-driver agreement is in
accordance with Philippine Laws, therefore, it is legal.
On the contrary, under the second school of thought, the partnerdriver agreement is not in accordance with Philippine Laws, thus, it is
illegal.

CHAPTER 3:
Research
Methodology

Research Framework

Research Methodology
Comparative Approach
Document Analysis
Interview