Part of what makes Uber, Lyft, Grubhub and other “gig economy” companies so profitable is that they have relatively few employees. The vast majority of these companies’ workforces are made up of independent contractors. Since they are not employees, they are not entitled to minimum wage or overtime protections, much less workplace benefits such as workers’ compensation, access to unemployment insurance, shared payroll tax liability or employer-sponsored healthcare.
If gig economy companies can avoid paying for those benefits by classifying their workers as independent contractors, why doesn’t everybody do it? There are a couple of main reasons. One is that our government put those workplace benefits in place for a reason, and it’s bad public policy to let employers avoid them. Second, determining who is an employee vs. an independent contractor is not up to the organization — it’s a legal question.
So far, judges in New York and California have ruled that Uber drivers and similarly situated workers are legally employees under their state laws. A Florida court ruled the opposite under that state’s law.
Until now, however, no federal court had made a ruling on the issue. A federal judge in Philadelphia recently ruled that UberBLACK drivers, who operate limousines for the company, are to be classified as independent contractors under federal law.
This is not a situation where federal law trumps state law. States may not offer employees less protection than that provided by federal law, but they are free to offer more protection. For example, the federal Fair Labor Standards Act (FLSA) determines the federal minimum wage (in addition to employee classification). It currently specifies $7.25 as the minimum wage for all covered workers. However, New York City and New York state both have higher minimum wage structures.
How is employee classification determined?
When considering whether a worker is a contractor or an employee, judges weigh similar factors under the federal FLSA and New York law. No single factor controls the outcome, and together they weigh toward either the company or the worker being more in control of the manner, means and results of the job. The more control the company exercises, the more likely the worker is legally an employee.
In the Philadelphia case, the judge noted in particular that UberBLACK drivers are free to accept and decline assignments without risk. Moreover, between clients, they are free to run errands, smoke cigarettes and even take naps. This indicated to the judge that UberBLACK exercises minimal control over the timing and details of the arrangement, so the drivers should be legally considered contractors.
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