by Ann C. Hodges, Professor of Law, University of Richmond
The recent decision by a California labor commissioner that an Uber driver is an employee rather than an independent contractor is of limited significance in and of itself. What it may signal for the future of the sharing or gig economy is far more interesting.
The decision is based on California law and, unless reversed on appeal, will require Uber to pay the driver several thousand dollars in business expenses. Determining whether an individual is an employee or an independent contractor is a complex decision based on a multi-factor test. Most employment statutes exclude independent contractors from their coverage, based on the theory that contractors are independent business owners that do not need the legal protection. In recent years, however, misclassification of employees as contractors has become a common practice. In some cases, misclassification may be mere error, but in others it is an attempt to evade employment laws, avoid deducting and remitting income taxes and escape payment of the employer portion of social security. Other advantages to the employer of the independent contractor classification are reducing the potential liability for any negligent or wrongful actions of the individual and avoiding payment of employee benefits.
The IRS is attuned to the issue and watching for misclassification, along with enforcement agencies for employment statutes and plaintiffs’ employment lawyers. Enforcement resources are limited, however, so misclassification remains rampant. While all courts and agencies use similar multi-factor tests, differences in emphasis and weighting of factors result in different conclusions about similar workers. For example, in a series of cases about FedEx drivers under a variety of employment laws, some courts and agencies have found them to be employees and others, contractors. Some decision makers emphasize the amount of control exercised by the business while others put more weight on the availability of individual entrepreneurial opportunities.
The recent Uber decision is similar, emphasizing Uber’s control over many aspects of the drivers’ jobs. But this is just the application of one state statute, which is more employee protective than many, by one decision maker to one employee. If more decisions find drivers to be employees under more statutes, however, the business model that supports the gig economy may be threatened.
The more interesting issue that the decision raises is the relationship between the gig economy and existing law. Depending on the details of the business model, workers in the gig economy might be considered independent contractors, part-time employees, temporary employees, or casual workers. Many laws exclude some or all of these groups of workers. If this becomes the dominant work pattern of the future, laws will need to be changed to protect workers against exploitation by businesses.