Technology’s implications on the “gig economy” and employment law
January 15th, 2019 by David Minces
Temporary jobs, often referred to as “gigs,” are a rite of passage for many young Americans. Millions of teenagers serve or have served as lifeguards, fast food workers, babysitters, and interns. The phenomenon of young Americans doing gigs to make pocket money is a major plot point in movies like Caddyshack and Staten Island Summer. Such work, with relatively low pay and benefits, is not usually anticipated to be a lifelong career. However, gigs offer young unskilled Americans the ability to save money for college and develop professional characteristics.
Technology is changing the “gig economy”
In the modern era, technology is increasingly causing older generations to join teenagers in the gig economy. Apps like Uber and Fiverr efficiently connect consumers to people who can provide the services they demand. These workers can make money while retaining a degree of independence that workers with bosses do not have. For example, Uber is a ride-sharing app that connects drivers and riders, algorithmically determines how much the ride should cost, and gives drivers a portion of the payment. Uber allows its drivers to use their own cars and choose when, how much, and where they drive. It also lets its drivers select and rate their riders. For many, the liberties Uber offers make it a great way to earn an income.
As more Americans take up gig opportunities offered by tech companies, the portion of workers classified as “independent contractors” will grow. The freedoms of these workers come at a price, as independent contractors are not entitled to Fair Labor Standards Act (FLSA) protections like minimum wage and overtime. Additionally, questions remain as to whether many of these workers should be classified as independent contractors.
Requirements for independent contractors
Traditionally, independent contractors are workers that perform services for the general public. They sell the end result and have autonomy to choose how they achieve said result. Under the FLSA, there are several factors that must be taken into account in order to determine independent contractor status. These are:
- the degree of the alleged employer’s right to control the manner in which the work is performed
- the alleged employee’s opportunity for profit or loss depending upon managerial skill
- the alleged employee’s investment in equipment or materials required for the work
- whether the service rendered requires special skills
- the degree of permanence of the working relationship
- whether the service rendered by the worker is an integral part of the alleged employer’s business.
These factors are non-exhaustive and vary by court. This test is commonly known as the “economic realities” test, and it is supposed to prevent businesses from misclassifying their employees as independent contractors. However, many employers (knowingly and unknowingly) misclassify their workers. Paying workers as independent contractors enables employers to avoid following FLSA requirements and paying payroll taxes, Social Security, and Medicare.
Recently, several separate judges found that Uber drivers should not be classified as independent contractors. They found that the drivers provide the core service of Uber’s business, a major factor in the economic realities test. On January 2, 2019, a district judge in Maine found Uber liable for damages to dozens of drivers, many of whom worked more than 40 hours per week and/or were paid less than Maine’s minimum wage of $12 per hour. On January 3, 2019, a district judge in North Carolina approved a $1.3 million dollar settlement to a class action lawsuit composed of 5,200 Uber drivers making similar claims.
Effect of lawsuits against Uber on Texans
Since 2017, when Texas state legislature passed “the rideshare law,” Uber has proliferated across the Lone Star state. Before the law, several major Texan cities had regulations Uber deemed too restrictive to allow it to operate. For example, Houston and Austin required Uber to maintain a fingerprint database of all of its drivers. The rideshare law eliminated local regulations like these. Uber can now operate throughout Texas as long as it conducts local, state, and federal background checks on its drivers. Now, millions of Texans drive for Uber or use its services.
All of these Texans may be affected by the recent lawsuits against Uber, which may encourage other drivers to seek damages from the company. As the state where Uber drivers receive the second lowest hourly rate after North Carolina, Texas may be the battleground for the next fight between drivers and the tech company that they work for.
Another group is affected by the news of the lawsuits: investors. Uber is expected to go public and issue stock sometime in the first quarter of 2019. The recent suits against the company may affect the reception of its initial public offering.
Misclassification occurs outside of the technology industry too
Tech companies face a disproportionate amount of media scrutiny over misclassifying employees as independent contractors. It makes sense: these companies are changing entire industries and employment practices. However, Uber and other tech companies are not the only ones to have been found guilty of misclassification. For example, this mistake is also common among oil and gas corporations that operate in Texas. Companies like Murphy Oil, Encana, BHP Billiton, and others have been forced to pay damages for misclassifying oilfield workers, who often work long hours but do not receive overtime pay. In the past, Minces PLLC has represented clients across numerous industries who were misclassified as independent contractors.
Minces PLLC has decades of combined experience representing both businesses and employees. Among other things, Minces PLLC can help employers verify that they are properly classifying their employees and represent employees seeking damages arising from misclassification. If you are a business or individual with misclassification questions contact our office so that we can help.
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