Appeals court: Postmates couriers are contractors, not employees | Katz Melinger PLLC
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Appeals court: Postmates couriers are contractors, not employees

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An appeals panel from the New York Supreme Court Appellate Division, Third Judicial Department, has ruled that Postmates Inc. couriers are independent contractors rather than employees. The decision overturns a finding by the state Unemployment Insurance Appeal Board that the delivery logistics company is legally an employer and is therefore liable for unemployment insurance contributions.

The ruling is bound to fuel debate on whether "gig economy" workers should legally be considered employees of the companies that arrange for their services. Postmates handles delivery of food and other goods locally. Much like drivers for Lyft or Grubhub, Postmates couriers sign up for work through a website and pay the company a fee for each job they take. Earlier this year, a federal judge in California ruled that drivers for Grubhub are independent contractors. 

While the New York ruling specifically addressed liability for unemployment insurance contributions, it could have far-reaching implications. When workers are considered employees, they receive a number of employment protections not afforded to independent contractors. For example, the Fair Labor Standards Act provides that most employees are entitled to be paid at least the federal minimum wage for all hours worked, and a premium overtime rate when employees work more than 40 hours per week. Employers are also typically required to pay half of their employees' payroll taxes, as well as provide workers' compensation insurance, access to unemployment insurance, and employer-sponsored benefits to their employees.

Independent contractors receive none of these protections and benefits. Observers have pointed out that the business models for many "gig economy" companies center on avoiding payment for these benefits. Their practices put more traditional companies at a disadvantage, and leave employees vulnerable to injuries and economic downturn.

Whether or not these business models are good public policy, they appear to be legal under current law. Under the Fair Labor Standards Act, the following factors are considered when determining whether a worker is legally an employee or an independent contractor:

  • Whether the work performed is integral to the company's business;
  • The permanency of the work relationship;
  • How much the worker invests in facilities and equipment;
  • The worker's opportunity for profit and loss;
  • The degree to which initiative, judgment, and foresight are required for the worker's success in open-market competition with others;
  • The extent of the worker's independent business organization and operation;
  • The nature and degree of control over the work exercised by the company.

While no single factor is dispositive of the issue, in this case, the appellate panel appeared to focus on the last factor, reasoning that Postmates did not exercise sufficient "supervision, direction and control necessary to establish an employer-employee relationship."

The court noted that the couriers are not required to report to a supervisor, and are free to perform as much or as little work as they desire -- including none at all.

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