Employee vs. independent contractor: Uber lawsuit sparks FLSA employment law debate

posted on:
July 13, 2015

Temp Temple

Uber and American employment law have been butting heads for years now over how to classify the innovative ride-hailing service’s drivers in accordance to the Fair Labor Standards Act (FLSA) – 1099 contractors or W2 employees. The seemingly endless battle being waged seems to stumble on new employment law territory in need of further clarification. Until new laws are made, FLSA experts attempt to split the difference between the two types, suggesting a new classifcation may need to be created, which has been referred to as the “dependent contractor.”

In order to understand the debate, it’s important to understand the pros and cons of each classification under existing employment laws.

If the worker is classified as an independent contractor, the worker’s pay can add up to be less than minimum wages. The worker is also responsible for costs incurred while on the job (in the case of an Uber driver, that means gas). Additionally, the worker will receive no benefits like health or life insurance. The business, however, must endure shortcomings as well, such as limited direction or supervision, which can result in irregular and sometimes even unreliable service.

If the worker is classified as an employee, the company must incur some costly overhead expenses. The company is responsible for paying the employee’s overtime, worker’s compensation and benefits like health and unemployment insurance. Still, it isn’t perfect for the employee either, who must be willing submit to the inflexible will of his or her employer at all designated work hours.

If the government were to merge the two employment classifications, the dependent contractor could be formed. In order to avoid the hiked-up employment costs for the employer, the government could levy a surcharge for companies utilizing dependent contractors and offer basic benefits to the dependent contractors, like unemployment insurance and worker’s compensation. The company would be required to pay dependent contractors a minimum wage of at least $7.25 an hour, as well as reimbursement for business-related expenses. Until the legal system updates its laws to meet the needs of ever-changing work environment, the dependent contractor is still just a theory.

A California case sparked new life in the debate. Barbara Ann Berwick, a former Uber driver, fought to be recognized by her past employer as an employee, not an independent contractor, considering Berwick’s communication with and dependence on Uber was crucial to her job performance. The California Labor Commission eventually ruled in favor of Berwick, stating the company was, “involved in every aspect of the operation.” Berwick received a total of $4,152.20 to compensate her past employee expenditures, including toll charges, mileage reimbursements and even interest. Uber appealed the California court’s ruling; however, the ruling was still powerful enough to invigorate other legal initiatives, including a major class action suit, still ongoing across the nation.

Other companies like Uber, such as mailing company Shyp, are choosing sides in the labor law controversy. Instead of being potentially pulverized by boundless litigation battles attempting to navigate the confusing world of labor laws, Shyp CEO Kevin Gibbon announced the company will officially classify its workers as “employees.” He recently came forward to talk about shifting the company’s business model, saying he feels the decision will better accommodate the company’s couriers:

“After careful consideration, we’ve decided to transition Shyp couriers, the individuals who complete pickups at our customers’ homes and offices, to W2 employees,” Gibbon announced. “This move is an investment in a longer-term relationship with our couriers, which we believe will ultimately create the best experience for our customers.”

California Judge Vince Chhabria recently wrote about the issues surrounding the contractor vs. employee classification during a similar case featuring one of Uber’s competitors, Lyft:

“The jury in this case will be handed a square peg and asked to choose between two round holes,” Chhabria said. “The test the California courts have developed over the 20th century for classifying workers isn’t very helpful in addressing this 21st-century problem.”

New York Magazine
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