Hot Topic - Classifying Drivers

Well-established business, like FedEx, and newcomers, like Uber and Lyft—both start-up companies that allow customers to hail a car from their phones instead of hoping to find a cab or calling a car service—are finding themselves facing some hard questions about how drivers should be paid. Drivers have filed lawsuits arguing that, even though they are classified as independent contractors, in reality they face enough restrictions and controls over their work that they should be paid as employees, which means receiving minimum wage, overtime and business expense reimbursements for costs like gas, auto repairs and uniforms.

Drivers allege that Uber and Lyft set prices for rides, discipline drivers for not accepting rides, hold themselves out as car services, perform extensive marketing and advertising for their services, and obviously depend solely on drivers for their revenue. Uber drivers allege that they can be fired with no warning and for actions like criticizing Uber online—and that this makes them more like employees, who typically work at-will, than independent contractors, who are typically not subject to such close supervision.

FedEx drivers are subject to even more control: they are required to wear uniforms and conform to personal appearance guidelines, drive very specific vehicles within assigned areas and make deliveries within a certain time frame. Drivers have indefinite, long-term relationships with FedEx, are paid on a weekly basis without the opportunity to negotiate their rates, have no contracts with clients, and may have their routes changed by FedEx at any time.

In 2015, two federal judges in California ruled in two separate lawsuits that drivers for Uber and Lyft arguing that they should be paid as employees, not independent contractors, could go to trial. One judge noted that the current factors used to determine whether workers are employees or independent contractors are outmoded in light of new business models of companies like Lyft. In June 2015, the California Labor Commission ruled that an Uber driver was an employee, not at independent contractor, and a similar ruling in Florida stated that Uber drivers are employees who should be permitted to claim unemployment benefits. FedEx has faced similar issues and often adverse rulings for years, and it recently settled a lawsuit by California drivers for over $200 million.

Similar on-demand services have arisen in other industries as well, from house-cleaning to virtual assistants and deliverers. These businesses spend much less on labor costs when they classify workers as independent contractors, but where they exercise significant supervision and control over how workers perform their jobs, this classification may be improper. Business models, new and old, that rely on “independent contractors” are facing more and more opposition from workers who say that they simply do not have the level of true independence enjoyed by independent contractors—and therefore should be paid as regular employees with overtime and expenses.

At Pelton & Associates, we are taking an extremely close look at these on-demand business arrangements, as well as more traditional businesses that exert close control over workers while failing to pay them overtime and reimburse sometimes enormous business expenses. In industries old and new, misclassification continues to be rampant and companies try to cut costs by cheating workers out of their legally-protected wages. As we can see from these lawsuits in the news, and lawsuits that we have taken on behalf of workers, in today’s world employers cannot get away with misclassifying workers forever; someone is always going to speak up.

Sources:

New York Times

Wall Street Journal

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