Latest Controversy Over IC Classification for App-Based Workers
The nextSource Blog continues to follow the saga of app-based gig work and how regulatory bodies like the Department of Labor and the IRS address the question of “who is an employee and who is an independent contractor”. The highest profile of the many cases winding through state level courts, statehouses and the US Congress has to be those dealing with rideshare apps like Uber and Lyft. Here’s the latest news about misclassification challenges facing Lyft.
In a post from January of this year, we wrote, “For decades, vague or competing criteria for worker classification has combined with shifts in political influences to make it difficult for companies to be assured of compliance with Federal and State worker classification laws. The rise in the number of “gig economy” workers (15% year over year growth in Q3 2021 alone) has led to a surge in litigation alleging misclassification as well as workforce activism. At issue – protection offered to employees by wage, discrimination and anti-retaliation laws, access to benefits, and the right to unionize.”
The challenge continues to be the fragmented way in which the regulations are written and applied across different states. For example, it was late 2020 when California passed Proposition 22, promoted heavily by Uber, Lyft, Doordash and other app-based companies in the Golden State. The most expensive ballot measure in California history at more than $200 million spent to promote it, Prop 22 ultimately made it law to classify gig workers in these companies as ICs and ensured the workers, not the app companies were responsible for their own workers’ comp, family/sick leave, unemployment insurance while also explicitly disallowing workers to form a union. (More on this landmark case in our post here).
Often, states like California and New York generally tend to lead when it comes to this type of legislative or judicial action. However, this issue is so thorny, it does not seem that this will be the case this time. The issue of IC classification for Lyft drivers in New Jersey is still very much an open question. It was recently reported that the New Jersey Dept. of Labor has sent a misclassification suit against Lyft to an administrative law judge in that state to confirm that the DOL’s ruling against Lyft was indeed valid. The NJDOL says a four-year audit shows that Lyft owes $16 million in employer contributions for unemployment, temporary disability, family leave insurance and other benefits which they failed to pay by wrongly claiming Lyft drivers were ICs and not employees.
Sharon Thomas with Staffing Industry Analysts writes, “Generally, under New Jersey law, workers are presumed to be employees, and not independent contractors, unless the employer can meet all three parts of the [IRS’s] ABC test. In order to satisfy the test, a company must be able to show it doesn’t control the work, and that the service being provided is outside the usual course of business or outside the usual places of business, and the worker is engaged in an independent trade, occupation, profession, or business that could operate separately and apart from the company.
It is presumed that the ruling on this case may spur companies like Lyft, Uber and others to seek the same legislative action to protect their business models as they successfully achieved in the California ballot initiative. However, it would likely be as costly in NJ as it was in CA to pass.
So, for now, companies must keep abreast of the patchwork of laws and regulations on a state-by-state basis to ensure their compliance accordingly. Watch this space for ongoing updates about this difficult and evolving controversy.
