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New Jersey determines Uber drivers are employees, not contractors

| Nov 20, 2019 | Wage & Hour Laws

The question may be critical to your earning potential. When you work for Uber, you sign on as a contractor. But what if you were actually a legal employee?

The issue of how “gig economy” workers should be classified has been debated in several courts. New York City passed an ordinance requiring workers like Uber drivers to be paid a minimum wage. California just passed a law classifying gig workers as employees, and other states may soon follow suit.

In a move that could have implications in many other states, New Jersey has ordered Uber and a subsidiary to pay $649 million in back taxes and interest because, the state says, they misclassified their workers as independent contractors between 2014 and 2018. Since the workers were considered contractors, Uber and its subsidiary never paid the unemployment and disability insurance required for all employees in the state.

Classification of workers as independent contractors is crucial to gig economy companies’ business models. It allows the companies to avoid complying with many state and federal labor laws that are focused on employees. It is estimated that declining to provide workers with otherwise mandatory employment benefits saves the companies approximately 20-30% in labor costs.

Why is this important?

Independent contractors are not covered by most state and federal labor laws and don’t receive crucial benefits, such as:

  • Minimum wage
  • Overtime premiums
  • Reimbursement of business expenses like mileage
  • Employer-paid payroll taxes
  • Unemployment insurance
  • Disability insurance
  • Workers’ compensation insurance

Contract workers are expected to pay for their own taxes, insurance, workers’ comp and healthcare. But Uber drivers often don’t make enough to cover all those things.

How is proper employee classification decided?

Proper employee classification is determined by statute, not by the convenience of the employer. Employers don’t get to decide whether you’re a contractor or an employee. There are legal considerations.

Although the exact rules can vary by state, the courts generally use a multi-pronged test to determine whether a worker is an independent contractor or an employee.

The primary question is whether the employer exerts significant control over the details of the work. The less control the employer exerts, the less likely it is that the worker is an employee. When an employer dictates things like the worker’s schedule or routes, it is more likely the worker is an employee.

Another important consideration is whether the work being performed is core to the company’s business. When the work is core, it is more likely the worker is an employee.

In court cases, Uber and other gig economy companies have generally argued that the work they provide is part time and scheduled at the worker’s discretion. They argue that their core business is not providing rides – it’s proving software that hooks up willing drivers with passengers. They argue that they don’t exert much control over what their drivers actually do.

What does the ruling mean for me?

Here in New York, gig economy workers are actively challenging the assertion that they are independent contractors. As courts seek to figure out the issues with this novel business model, they will look to what other jurisdictions have decided. New Jersey’s ruling doesn’t apply in New York, but it will weigh on the side of gig workers being properly classified as employees in New York.

If you believe you have been misclassified as an independent contractor, you could be entitled to benefits and, if appropriate, back wages. Contact an attorney experienced in wage and hour laws for an evaluation of your situation.