A $100 Million Worker Classification Mistake– 3 Important Takeaways from Uber’s Legal Battle
In their highly publicized and closely watched lawsuit defending against worker misclassification of the IC drivers using their application, market leader Uber has agreed to pay out initially $84 million, with the stipulation that the judgment will rise to $100 million if the company goes public and reaches a valuation of $90 billion. This settlement is applicable to drivers in class actions lawsuits in Massachusetts and California only. However, there are other states with similar and pending cases. This recently announced settlement is still pending a US district judge’s approval. This settlement will compensate each driver less than $2,000 (estimated) and a large portion will go to legal fees already incurred by Uber’s defense. While the drivers are not happy with their small payout, Uber and other users of Independent Contractors are focusing on the important lessons learned. Here are the three critical takeaways from this landmark case.
- Workers must take steps to educate themselves better on what it means to be an employee versus an IC. In the case of Uber, their drivers have seen and heard all about this in the news. If they haven’t, their patrons have asked them about it. As such, they must be at least prepared to answer patrons’ questions. Better yet, they should have a working understanding of the laws governing their employment status. Overall, more workers have a general understanding of the differences between being an employee and an IC.
The Millennials entering the workforce benefit from the examples provided by Gen X before them. Generation X was the first generation to experience as the “normal” state of employment working for numerous different companies and working for themselves. The baby Boomer generation before Gen X inhabited a work world wherein an employee mostly worked for one single organization for the course of their career before retiring. Today’s workers have grown to understand that as independent contractors, not only do they control the time they invest into working, but they must also manage their own tax payments, and re-investments to their work; and as in the case of Uber drivers, the maintenance of their cars.
- Organizations need to review their classifications and all contractual agreements related to their independent contractors. Keeping in mind that, while a worker may control portions of the services provided, there are many more factors that go into truly being “independent” and therefore not an employee. Organizations can no longer turn a blind eye to questionable classifications. Best practices dictate there must be rigorous internal education of line-level managers and stakeholders to warn of the dire implications of misclassification. Auditors from the IRS or Department of Labor investigators will first look at the agreements in place with Independent Contractors to gain the overall intention of the relationship and the employer’s potential complicity with intentional misclassification.
Beyond making sure that workers are compliant with state and federal laws, employers should ensure that the agreements accurately demonstrate: 1) the working relationship 2) control of the work product by the independent contractor and 3) acceptance criteria by the client.
- Misclassification of workers is costly! With several high-profile, large dollar lawsuits in the news like those facing FedEx and more recently Uber, the fines and penalties levied by governmental agencies (which on average, add up to about $80,000 per worker) are now joined by potentially costly lawsuits brought by workers with educated claims, looking to receive additional compensation. Thus, time and money is saved when a business hires a third-party organization, like NextSource, to oversee compliance services and avoid costly penalties down the road.
