Over the past few years, the US has seen incredible growth in the sharing economy or “gig economy”. On one hand, sharing economy companies like Uber, Lyft and Postmates have created an infrastructure that allows people to make money on their own schedule, and without the hassle of a job interview. On the other hand, the pay and conditions associated with sharing economy “gigs” sometimes fall below the standards set by employment law. So far, this has been allowed because the overwhelming majority of sharing economy workers sign agreements which say that they are independent contractors.
While the text of a contract matters, the final determination of whether a worker is an independent contractor or an employee is based on the actual relationship between the worker and the employer. Courts and government agencies have begun to find that some sharing economy workers are employees. Uber drivers have been winning unemployment benefits in California. In addition, a judge recently granted class action status to a lawsuit which claims that up to 160,000 Uber drivers may have been misclassified as independent contractors rather than employees.
Courts and government agencies consider dozens of factors in determining whether a worker is an independent contractor or an employee. Here are some of the most important factors:
Level of Direction
The degree to which the company tells the worker how to do their job. A worker who is asked to adhere to specific policies and procedures might actually be an employee.
Extent of Personal Services
True independent contractors are often free to subcontract work to a third-party or hire their own employees to complete tasks.
Companies that provide training do so because they want the work done in a certain way. Training can suggest an employer-employee relationship.
Work for Multiple Companies
Workers who perform the same type of services for multiple companies are more likely to be classified as independent contractors. Companies that prohibit workers from providing services for others in the same field may be classified as direct employers.
Degree of Business Integration
Workers whose services lie at the core of the purpose of the business are more likely to be considered employees.
Need for On-Site Services
Situations where a worker performs tasks at the company’s site are more likely to be part of an employer-employee relationship.
Employees generally have more rights than independent contractors. Employees have protections under wage and hour laws, laws against discrimination, laws against sexual harassment and laws protecting people with disabilities.
Employees also have half of their payroll taxes paid by their employer; independent contractors must pay both halves of their social security and medicare taxes themselves. In addition, employees are eligible for unemployment benefits in case of discharge and workers compensation in case of an accident. These benefits make a significant difference in the finances of many “gig economy” workers.
Misclassification of employees and violation of employee rights can lead to large lawsuits. In 2002, a jury found that Mary Kay, a cosmetics company, had misclassified an employee and then failed to provide reasonable accommodation for the employee’s disability. The plaintiff was a top saleswoman and team leader for Mary Kay in California. When she became ill with cancer, the company refused to reduce her $8,000 monthly sales quota. The jury awarded the saleswoman $11.2 million, of which $10 million was for punitive damages.
The sharing economy has allowed thousands of people to make money without the hassle of a job interview. Unfortunately, it has also left many people in an employment relationship, but without employment rights. If your employer says that you are an independent contractor, but you think that you might actually be an employee, please contact us.