When is an Independent Contractor really an employee? That is a question that regulators and the judicial system have been wrestling with for years. And that’s something that business owners should pay attention to. Take the recent case involving Uber for example.
Founded in 2009, Uber is a mobile-app-based transportation network. Consumers in need of transportation use an app to summons a crowd-sourced driver to provide a taxi service. The concept drew outrage, protests and eventual lawsuits from taxi drivers across the globe. Despite the opposition, Uber operates in more than 38 countries and 200 cities worldwide and some estimates peg their value in excess of 40 billion dollars. Not bad for a six year old company. But the opposition from the livery industry might pale in comparison to Uber’s most recent challenge.
In June, 2014, a class action lawsuit was brought against the company and filed in Suffolk Superior Court in Massachusetts that claimed the company misclassified drivers as Independent Contractors. Shannon Liss-Riordan of Lichten & Liss-Riordan, a Boston law firm that is a plaintiffs’-side employment and union-side labor law firm, points to company practices that are inconsistent with securing the services of an Independent Contractor that include the prohibition of drivers from accepting tips. Further, the plaintiffs also claim that the purported misclassification by Uber enables the company to avoid paying for benefits and other expenses paid by the drivers that would normally be paid by the business if the drivers were classified as employees. In the age of the Affordable Care Act, avoiding paying for benefits is something not to be taken lightly.
Which side prevails remains to be seen, but as Denise Cheng, a research assistant at the MIT Center for Civic Media stated in a recent Boston Globe article, “If their drivers are classified as employees then that suddenly makes their business model untenable.” If true, that would be a big blow to the 40 billion dollar company.
If you own a business, perhaps yours is not as large as Uber, but it is always wise to ensure that the use of Independent Contractors be consistent with IRS guidelines. We have maintained for many years that the scrutiny of the misclassification of Independent Contractors will continue to expand. All business owners should take heed. Uber certainly is.
For more information on the classification of Independent Contractors, please reach out to Genesis HR Solutions at AskUs@genesishrsolutions.com or 800-367-8367
Genesis HR Solutions is the premier PEO provider for Massachusetts based businesses.