Don’t Fall Into Legal Traps in the Gig Economy
There is a strong financial motivation for companies to classify their workers as independent contractors rather than employees. So-called “gig economy” companies such as Uber and Lyft, the ride-sharing services, have been investigated by the California Labor Commissioner and are in class action litigation with drivers themselves over their classification as independent contractors. In classification claims, it is incumbent upon the employer to prove the workers are not employees. This runs contrary to most other litigation, in which the plaintiff bears the burden of proof that a law or contract has been violated or breached. Violations can result in state agency enforcement, individual lawsuits and class action litigation. If found to be in violation, companies must pay the state and federal tax for each employee, as well as fines and penalties which can run into the tens of thousands of dollars.
The definition of an employee v. independent contractor comes down to the control the company has over the worker. In general, an independent contractor is someone who is in business for him or herself. An employee, on the other hand, is someone whom a company has much more control over. An employee typically performs work that is a regular part of a company’s business, has regularly scheduled hours and works at the employer’s place of business. There are other factors, many of which are determined on a case-by-case basis, which is why it is important to seek legal counsel when classifying workers.
The problem for a company comes along when a business relationship ends and the worker applies for unemployment benefits with the California Employment Development Department, or when a worker files a wage claim with the California Department of Labor Standards Enforcement (DLSE). Miscalculation claims often increase at tax time, when a contractor finds out how much state and federal tax they owe, and around terminations. Risk to a company is often latent until these triggers occur.