That’s a risk that Uber is coming head to head with as the quasi-cab company fights a class action in the federal court. And the repercussions of the lawsuit’s result may be far-reaching, not only for companies that operate within the “sharing economy”, but also for anybody hiring independent contractors.
Uber drivers across the nation have filed against the company for misclassifying the drivers as independent contractors. The drivers provide their own cars and pay for gas and vehicle maintenance, and are given a percentage of profit from every ride. An arbitration clause in their contracts barred drivers from bringing class-action suits against the company, but in December a federal court ruled that Uber must allow drivers to opt out of the clause, denying Uber’s motion to dismiss the case.
Other contractor-powered companies like Lyft, another cab service, and Postmates, a delivery service, have their eyes on the case, as do many other companies involved with independent workers.
“Misclassification is so widespread that many companies think it’s the norm and may claim not to know there’s anything wrong with what they’re doing,” says Shannon Liss-Riordan, an employment lawyer on the Uber case. “However, the issue has received so much attention in recent years that it’s hard to believe that they are doing this so innocently.”
Liss-Riordan expects to see growth in the number of misclassification cases as numbers of independent and temporary workers increase, and plans to continue taking on class actions for contractors.
While state and federal laws differ across the nation, the courts make decisions based on the economic realities of each case.
“The most significant factor is how much control the company has over the worker – the more control, the more likely the worker is an employee and not an independent contractor,” Liss-Riordan says.
If you’re unsure whether a worker should be classified as independent, remember the key points the courts consider when judging misclassification cases:
- Is the worker economically dependent on the company?
- Do they really have their own independent business that could survive without the company?
- How dependent is the company on the workers?
- Do the workers perform the core services provided by the company?
The Department of Labor did not respond to requests for comment.
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Temporary staffing and independent contracting is growing stronger and stronger, with 42% of employers planning to hire such workers this year, up from 40% last year (CareerBuilder, 2013). But with different types of workers come different sets of regulations, and a very real risk of misclassification.