All across the U.S., gig economy companies like Uber and Lyft have upended traditional ways of doing business. By relying on independent contractors rather than employees to perform the work, companies have been able to save untold millions in required employee benefits like unemployment insurance and workers’ compensation.
This has been quite controversial, because it leaves people who might otherwise be considered fully employed without the protections of our major labor laws.
In most cases, independent contractors aren’t even entitled to the minimum wage and overtime. They aren’t necessarily protected by federal laws like the Fair Labor Standards Act. They don’t have access to employer-paid workers’ comp if they are injured on the job. They can’t get unemployment insurance if they lose the job.
Is it legal for companies to use independent contractors to run crucial parts of their businesses? That question has been before the courts, and so far there has been no clear answer. Some courts have ruled that the companies are properly classifying these workers as independent contractors.
California has passed a law that reclassifies gig workers as statutory employees, and other states are considering similar measures. New York City has passed a minimum wage ordinance to protect gig workers, although it does not classify gig workers as employees.
New Jersey decides Uber drivers are employees, fines Uber $649 million
Just last week, the state of New Jersey determined that workers for Uber and its subsidiary Raiser should be classified as employees, not independent contractors. If true, that would mean that Uber and Raiser failed to pay the employer half of their workers’ employment taxes.
In fact, New Jersey says the two companies have failed to pay their half of the employment taxes, which would have been contributed to unemployment and disability insurance, between 2014 and 2018. An audit revealed that the amount the two companies failed to pay was $530 million. The state is seeking that amount plus $119 million in interest.
A spokesperson for Uber said that the company is challenging what it sees as an incorrect, preliminary determination and insisted that the drivers are independent contractors.
At the same time, the New Jersey Senate began debating legislation that would limit when companies could classify someone as an independent contractor versus an employee.
Although the actions of other states have no direct impact on Indiana, the same issues are at stake. Is it fair to say that Uber drivers are running their own businesses with Uber as a client? Does Uber exert enough control over the details of the drivers’ work that it should be considered an employer? Are gig economy companies gaming the system by intentionally misclassifying workers as independent contractors?