21 Nov New Jersey Fines Uber Big Time
New Jersey Fines Uber Big Time in Latest Employee – Contractor Classification Argument
A major battle has flared up in the growing dispute over how to classify workers who provide services in today’s “gig economy” for businesses like Uber and Lyft.
The State of New Jersey announced On November 14th it was fining ride-sharing giant Uber $649 million for back unemployment taxes and penalties, alleging that Uber wrongly classified drivers as independent contractors instead of employees and consequently avoided paying unemployment taxes for 2014-18. The actual tax levy is $530 million plus $119 million in interest.
Not surprisingly, Uber took issue with New Jersey and said it would challenge “this preliminary but incorrect determination, because drivers are independent contractors in New Jersey and elsewhere.”
New Jersey’s move is the latest in a widening effort by U.S. states and cities to rein in gig economy companies that rely on independent workers who are less costly than employees. For the governments, the objective is obvious: hundreds of millions of dollars of revenue is at stake.
For workers, at stake are basic employee protections and benefits, such as minimum wage and overtime, health care and unemployment insurance benefits.
Ride-sharing industry estimates say that classifying workers as employees could increase labor costs for companies such as Uber and Lyft by 20 to 30 per cent.
California passed legislation in September that designates all workers as employees unless a three-pronged test is met that permits them to be classified as independent contractors. The only way a worker can be exempted from that presumption requires a three-part test, known as the “ABC” test in order to be classified as an independent contractor. The test requires the worker to:
- A) be free from the control and direction of the hiring entity in connection with the work being done;
- B) perform work that is outside the scope of the hiring entity’s usual course of business; and
- C) be customarily engaged in an independently established trade, occupation or business.
ETC reported on the California law here:
Other states are seeing similar legislation take hold as labor groups push efforts in New York, Oregon and Washington. In New York City, drivers who work for ride-hailing companies must be paid a minimum wage although they are not technically employees.
Separately, lawsuits by drivers are cropping up. In New Jersey Jaswinder Singh, an Uber driver, filed suit (Singh v. Uber Technologies) to recover overtime wages for himself and other drivers. That case is stuck in the appellate process at this time.
The take away: Given that the regulatory authorities (especially the States these days) are so disinclined to agree that workers are independent contractors as opposed to W2 employees, business owners should review carefully any independent contractors for whom they retain services. The Texas Workforce Commission provides a lot of information regarding the proper and improper use of independent contractors in Texas.
Not surprisingly, Texas regulators have seemed to follow both California and New Jersey’s lead on determining that most workers are not independent contractors. Take a look at this link for four case studies provided by TWC. Case 4 is strikingly familiar to the New Jersey/UBER disagreement.