You’re Not the Boss of Me: The Misclassification of Workers in the On-Demand Economy

Lindsey Hale, KLJ Staff Editor[1]

The rise of the “on-demand economy” or “gig economy” due to the appearance of companies such as Uber, Lyft, and Airbnb has spurred a legal debate over whether these types of workers should be classified as employees or independent contractors.[2] This classification is important because it determines whether a company is required to provide workers with a minimum wage, overtime pay, Social Security benefits, and health insurance.[3]

On-demand companies use technology to immediately connect a consumer to a good or service.[4] Such a company notifies its workers that a customer is available in their area and the worker determines whether or not to take the job. On-demand jobs are especially attractive to millennials because they are often more flexible and offer workers the ability to be their own boss.[5] Workers are responsible for setting their own schedules and determining how often they will work. As a result of this freedom, many on-demand companies classify their workers as independent contractors rather than employees.

The issue of misclassification arises when an on-demand company terminates a worker for turning down gigs. When determining whether a worker is an employee or an independent contractor, courts have looked to whether the worker exercises entrepreneurial control over the business.[6] Workers who determine their own hours and are not penalized for turning down gigs would likely be considered independent contractors. Whereas, workers who do not have control over their schedules and are told how many gigs they must work will likely be considered employees.

By classifying workers as independent contractors, on-demand companies can reap as much as forty percent more profit.[7] Although classifying workers as independent contractors appears to save on-demand companies money, such companies who choose to classify these workers as independent contractors run the risk of defending themselves in expensive misclassification suits. For example, Uber recently offered to settle a class action lawsuit brought under the Fair Standards Labor Act for $100 million with the stipulation that Uber’s workers remain classified as independent contractors.[8] This stipulation was critical because it prevented Uber from being required to pay thousands of workers back pay.[9]

Unfortunately, the dispute over the classification of on-demand workers will likely remain unresolved in the near future as on-demand companies continue to settle in order to avoid having to pay back pay. Thus, on-demand companies desiring to avoid having to settle future lawsuits must begin to either classify workers as employees or exercise less entrepreneurial control over workers.

[1] J.D. expected May 2017.
[2] Joe Kennedy, Labor Law and the Gig Economy: Why Stick with an Antiquated System?, The Innovation Files (Mar. 20, 2016), http://www.innovationfiles.org/labor-law-and-the-gig-economy-why-stick-with-an-antiquated-system/.
[3] Tahja Chappelet-Lanier, Lyft Drivers Still Aren’t Employees, but What About Uber Drivers?, The Atlantic (Jan. 27, 2016), http://www.theatlantic.com/business/archive/2016/01/lyft-drivers-uber-sharing-economy-employees/431631/.
[4] Lucas E. Buckley, et al., The Intersection of Innovation and the Law How Crowd Funding and the On-Demand Economy Are Changing The Legal Field, 38 Wyo. Law. 36 (2015).
[5] Joe Kennedy, Labor Law and the Gig Economy: Why Stick with an Antiquated System?, The Innovation Files (Mar. 20, 2016), http://www.innovationfiles.org/labor-law-and-the-gig-economy-why-stick-with-an-antiquated-system/.
[6] Id.
[7] Buckley, supra note 3.
[8] Tracy Lein, Uber Will Pay Up to $100 Million to Settle Suits With Drivers Seeking Employee Status, L.A. Times (Apr. 21, 2016), http://www.latimes.com/business/technology/la-fi-tn-0422-uber-settlement-story.html.
[9] Id.

*Featured image by Alfredo Mendez, licensed under CC BY 2.0.