It’s been a long week and you and your friends decide to go out on the town Friday night. Instead of driving, you make the decision to use Uber (the driving service) to get from point A to point B and to ultimately get home safely. Good decision, but did you know those drivers are independent contractors? Or are they? A current class action lawsuit in California addresses that very issue.
My friend Jon Hyman recently wrote an article about two class action lawsuits dealing with the alleged misclassification of employees as independent contractors. One of the cases involves the drivers for Uber (popular here in Dallas) and in both cases the judges denied summary judgment. The IRS provides fairly detailed guidance on how to classify but it requires a case by case analysis – there are no hard and fast rules. Of course the IRS is concerened with unpaid employment taxes and even offers an amnesty program. Some factors to consider:
- Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
- Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
- Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?
Your friendly neighborhood class action lawyer is going to assert claims for violations of the labor code, other unfair practices, and attorneys’ fees. The Uber lawsuit has a nice website and the original complaint has the plaintiffs seeking reimbursement for expenses Uber should have paid for along with other violations of the California labor code. According to their lawyers, Uber should pay drivers for overtime, unemployment insurance, workers compensation and, possibly drivers’ expenses, including gas and vehicle wear and tear. There is a good article about the case here.
Obviously employers want to stay out of the cross-hairs of class action lawyers. Making the correct decision from the outset on employment classification is critical as the Uber case demonstrates. The question that pops into my mind is whether Uber’s business model works if it is forced to classify its drivers of employees? If it is wrong, not only will Uber have to pay its drivers, but the IRS would be knocking on the Uber door as well.
