Popular messaging services such as Instacart, Doordash and Amazon Fresh recently made headlines with the news that they were keeping minimum wage promises to drivers by cutting pay and using tips to make up the difference. In other words, customers gave the impression that drivers received tips on top of the delivery charges they earned per ride, but instead, companies subtracted the value of those “tips” from the payments they made. had promised workers – saving the company money, but deceiving the drivers. (Under pressure, Instacart recently reversed its policy.)
Why can these companies get away with such behavior, especially in states like Washington where minimum wage tips are illegal? The answer is that these workers are not employees. They are independent contractors, and the employment law for independent contractors is very different from that of employees. As self-employed workers, they are entitled to fewer protections, but also, in theory, have a greater degree of freedom and control.
Some of these same workers argue that they are misclassified by their employers and should in fact be considered employees. This issue has been the subject of significant litigation, such as in 2016 when Uber was criticized for misclassifying workers in California and Massachusetts, and again in California in 2018, where workers won a lawsuit against the Dynamex delivery company. Now some states, including California, are trying to fix the problem with new legislation.
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Misclassification occurs when companies incorrectly classify a person who functions as an employee as an independent contractor. States and individual agencies have their own standards – like, for example, when deciding employment status for workers’ compensation purposes – and the IRS has its own 11-point standard. A much simpler rule was however applied in the case of Dynamex: the ABC test. The court concluded that to be considered an independent contractor, an employee must meet three criteria.
The first is the lack of control: independent contractors decide how, when and where they work, set the terms of their employment and do not receive very specific guidelines during their work. The second is the execution of work outside the scope of activity of the company. In addition, the work reflects an established and independent trade or specialty in which the worker is “usually engaged”. For example, a plumber is “usually engaged” in work relating to the installation, maintenance and repair of plumbing.
In another example, a florist’s shop may hire a tax preparer as an independent contractor, relying on an expert who sets their own terms and schedule to complete work that does not fit the parameters. normal florist sales. But if the florist hired someone to work in the store organizing flowers, that person would likely be considered an employee.
The rise of the “gig economy,” sometimes referred to as the 1099 economy in reference to the tax forms used to report the “miscellaneous” income of independent contractors, has highlighted the problem of misclassification, but this is nothing new. Classification errors have been a huge historical problem in the construction industry, as well as for domestic workers, janitors, truckers and many more. Almost 24 million workers worked as independent contractors in 2015 and only a small slice, around 1%, were workers in the “gig economy”.
For businesses, there is a definite advantage in relying on independent contractors: they are much less expensive to maintain. Businesses do not have to pay unemployment insurance, workers’ compensation or payroll taxes. Overtime and the minimum wage do not apply, nor do national and local requirements for paid family leave or sick leave. They also don’t need to provide perks like paid vacation, retirement funds, or health insurance.
Independent contractors take on all the risks of running a business, which is sometimes by desire and design. Tax preparers and freelance journalists, for example, may prefer the flexibility of freelance contracts, and companies with periodic specific needs that are outside their normal job, such as a company hiring experts for diversity counseling. and in inclusion, benefit from this type of independent subcontractor.
However, companies also label workers who function as regular employees as contractors: if you deliver packages for Big Package Company in a BPC folder, report for an hourly schedule, follow specific routes, and have to. other aspects of your day-to-day working life dictated by BPC, you are an employee – as a court ruled in 2015 in the case of a very real parcel company: FedEx. Even though you also work in Moonlight for Rival Package Company doing similar work, you are still an employee.
“Misclassification limits people’s ability to negotiate as companies act as employers and control how work is done,” explained Erica Smiley of Jobs With Justice.
Workers are not the only ones worried about classification errors. The practice is also anti-competitive, harming businesses that comply with the law by treating employees like employees, taking responsibility and the additional costs that come with it. “This is just another way for businesses to shift the burden onto workers and taxpayers,” says Steve Smith of the California Labor Federation.
It’s just another way for businesses to shift the burden onto workers and taxpayers.
Jobs in the gig economy often come with high promises of profit and are marketed with language used to describe freelance contracts, such as the ability to set your own hours and select your clients. Employees are not paid by the hour in many cases, but by the task; the more jobs they can accumulate, the higher the salary.
In the field, the reality is very different, whether you are a cleaner with Handy or a courier with Postmates. Companies pretty much dictate terms of employment, and in some cases have even created their version of the corporate store, as with companies like Uber and Swift, which have moved into selling and leasing vehicles for their businesses. “Entrepreneurs”.
States like Massachusetts, New Jersey and now California are trying to solve this problem with laws that clearly define the distinctions between employees and independent contractors. California’s AB5, for example, would codify the Dynamex decision. These laws, of course, do not magically eliminate the practice of misclassification or instantly reclassify workers, but they add additional guidance on the subject and create tools that workers and union organizers can use in the process. negotiations with employers.
In other regions, worker-organizers have focused on issues relating to working conditions themselves, such as pay and access to benefits, rather than on the issue of misclassification. It’s happened in New York City, Washington state, and elsewhere – though it’s worth noting that many of them focus specifically on the gig economy.
The effort to clarify the definition of independent contractors could benefit workers and employers alike, and could also be very disruptive to the tech industry. While the odd job economy represents a relatively small percentage of misclassified workers, Smith said, “What you are seeing with the odd job economy are companies that are building a whole business model around misclassification. . “
Even as lawmakers consider codifying protections, the National Employment Law Project finds that these companies are driving a wave of “market platform” legislation across the United States that explicitly defines workers in employment. the economy of odd jobs as independent contractors, not employees. A venture capitalist unabashedly told CNN: “What is ultimately a better business decision? To try to change the law in a way that you think works for your platform, or to make sure your platform fits into existing law? “
Building an industry on standardizing flawed classifications and sometimes pushing workers to advocate against their own rights, as seen with smiling workers in the odd-job economy shilling for their bosses, is a dangerous and disturbing trend. Companies are quick to claim that codifying independent contractor status would be “ruinous,” but they have also said the same about minimum wages, protecting the right to collective bargaining and other designed measures. to improve the health and safety of workers, and yet, in a way, capitalism wins. Companies that cannot meet their operating costs are falling, and others are rising to replace them.
“Some businesses,” Smiley commented, “may not deserve to exist in a modern society.”